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Tirole for helpful comments. Moreover, I am grateful to seminar participants at various universities and conferences. Financial support by the European Commission (Marie Curie Fellowship) is gratefully acknowledged.
This paper provides a theoretical rationale for three experimental results of Prospect Theory: risk preferences are over gains and losses, loss aversion, and diminishing sensitivity. We consider a (boundedly rational) decision maker who does not nd her new optimal consumption bundle with certainty when she is faced with a new income level. This alters her… (More)
We study a contract design setting in which the contracting parties cannot commit not to renegotiate previous contract agreements. In particular, we characterize the outcome functions that are implementable for an uninformed principal and an informed agent if, having observed the agent's contract choice, the principal can offer a new menu of contracts in… (More)
We present a dynamic agency model in which changes in the structure of a firm affect its value due to altered incentives. There may be disadvantages in merging two firms even when such a merger allows the internalization of externalities between the two firms. Merging, by making unprofitable certain decisions, increases the cost of inducing managers to… (More)
We characterize decision rules which are implementable in mechanism design settings when, after the play of a mechanism, the uninformed party can propose a new mechanism to the informed party. The necessary and sufficient conditions are, essentially , that the rule would be implementable if parties could commit not to renegotiate the mechanism, that for… (More)