Buying Sunglasses in Brazil (or how to restore commitment in bargaining)

The last time our family went to Brazil, our little ones arrived poorly prepared. We did not bring any sunglasses. Why would we? London’s winter sky rarely requires them. Brazil? That’s a different story. Upon our first five-minute walk between the luxurious apartment blocks, we were struck by the brightest of sunlight. Instead of buying … Continue reading Buying Sunglasses in Brazil (or how to restore commitment in bargaining) →

Washing the Dishes in China and Coase’s Theory of the Firm

Just before I left for China earlier this month, the Englishman whom I told about the adventure quipped that nowadays “Britain is more socialist than China.” Be that as it may, as a theorist I'm trained to understand cause and effect, not judge the big picture. One thing I learnt: there are many markets in … Continue reading Washing the Dishes in China and Coase’s Theory of the Firm →

Why Do Banks Exist? An Incomplete Contracts Perspective

Bank lending has proven to be quite resilient. The onset of digital financial markets has not upended the fact that most small- and medium-sized companies seek financing from banks, not via the issuance of bonds. And if game-theoretic literature from the 80s and 90s is any guide, this will not change anytime soon. Decentralized bond … Continue reading Why Do Banks Exist? An Incomplete Contracts Perspective →

Monopolistic Competition: The Quality-Variety Trade-off in the Market for Advertisement-Financed Media

Numerous papers have examined the transformation of legacy media following the spread of social media in 2008. I will return to this topic. This post deals with an earlier period: the 80s and the advent of private, advertisement-financed television. There exists a prevailing notion that the introduction of private, advertisement-financed television led to a decline … Continue reading Monopolistic Competition: The Quality-Variety Trade-off in the Market for Advertisement-Financed Media →

Is Market Power Self-limiting? Secret Contracting in Upstream Markets

Many courses in economics begin with the first welfare theorem. This theorem states that a decentralized market, if left to its own devices, will reach an allocation that cannot be changed to further improve the economic welfare of all market participants. A proof of this result is as simple as it is intuitive: If there … Continue reading Is Market Power Self-limiting? Secret Contracting in Upstream Markets →