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We conduct experiments to explore the possibility that subject misconceptions, as opposed to a particular theory of preferences referred to as the “endowment effect,” account for reported gaps between willingness to pay (“WTP”) and willingness to accept (“WTA”). The literature reveals two important facts. First, there is no consensus regarding the nature or(More)
Moral hazard exists in expert service markets because sellers have an incentive to shade their reports of buyers’ condition to increase the short-run demand for their services. The California vehicle emission inspection market offers a rare opportunity to examine how reputational incentives work in such a market. I show that consumers are 30% more likely to(More)
This article analyzes how legal presumptions can mediate between costly litigation and ex ante incentives. We augment a moral hazard model with a redistributional litigation game in which a presumption parameterizes how a court ‘‘weighs’’ evidence offered by the opposing sides. Strong prodefendant presumptions foreclose lawsuits altogether, but also(More)
We study the market for CEO talent in public US corporations from 1993-2005. We find large fragmentation of CEO talent pools. In particular, about 68% of new CEOs are former employees of their own firm (“insider CEOs”), and 86% are former employees in firms belonging to the same industry (including insider CEOs). Talent pool structure explains several(More)
We consider optimal capital allocation and managerial compensation mechanisms for decentralized ̄rms when division managers have an incentive to misrepresent project quality and to minimize privately costly but value-enhancing e®ort. We show that in the optimal mechanism ̄rms always underinvest in capital relative to a naive application of the net present(More)
This paper analyses how governance or institutional quality and tax morale affect the shadow economy, using an international country panel and also within country data. The literature strongly emphasizes the quantitative importance of these factors to understand the level and changes of shadow economy. However, the limited number of investigations use(More)
The socially optimal number of police hinges on the extent to which police reduce the most costly crimes, which are also the most difficult to model econometrically because they are rare. In the hope of minimizing simultaneity bias, papers in the recent literature have focused on quasi-experimental approaches that disregard most of the variation in police(More)
This paper explores the interdependence between market structure and an important class of extra-rational cognitive biases. Starting with a familiar bilateral monopoly framework, we characterize the endogenous emergence of preference distortions during bargainging which cause negotiators to perceive their private valuations differently than they would(More)