Microeconomic Theory, Contract Theory, Financial Economics, Behavioral Economics

Accepted and Published Papers:

The selectivity effect of past experience on purchasing decisions: Implications for the WTA-WTP disparity

Journal of Economic Psychology 29.5 (2008): 739-746

When consumers are not fully cognizant of the value of a good, they use their experience to estimate its value. Their past experience is selective if it only contains transactions that were carried out but not potential transactions that were not implemented. Failing to account for this selectivity may result in biased estimates of the post-purchase value. This paper presents a bounded rationality model of this process and investigates consequences vis-a-vis the abnormal disparity between willingness to pay (WTP) and willingness to accept (WTA). Implications for experimental findings concerning the dependence of the WTA to WTP ratio on a good's characteristics and the negative correlation between market experience and the endowment effect are discussed.

Working Papers:

Financial Contracts, Bargaining, and Security Design


We explore how a firm optimally finances multiple projects when profits depend on ex post bargaining with buyers. In the first stage the firm and investors in each project agree on a financial contract. In the second stage the firm negotiates prices with buyers of the outputs. A basic tension arises because the bargaining outcomes between the firm and the buyers depend on how the proceeds from the sales are divided with the investors. We solve for the contracts that implement the optimal sharing rule for the firm. Under some regularity conditions, this contract takes a simple form: the firm finances each project with debt separately.

Aspiration Based Choice

with Begum Guney, Michael Richter

(under review)


Numerous studies and experiments suggest that aspirations for desired but perhaps unavailable alternatives influence decisions. A common finding is that an unavailable aspiration steers agents to choose similar available alternatives. We propose and axiomatically characterize a choice theory consistent with this aspirational effect. Similarity is modeled using a subjective metric derived from choice data. This model offers novel implications for (1) the effect of past consumption on current decisions, (2) social influence and conformity within a network, and (3) the distribution of welfare when firms compete for aspirational agents.

Work in Progress:

Dynamic Insurance Contracts With One Sided Commitment

(with Tomasz Sadzik)

Social Norms for Gender Specialization

(with Michael Richter)