I analyze a game between an uninformed decision maker and a possibly biased expert. The expert receives a set of arguments, and each argument favors one of two alternatives. He can disclose each argument credibly, but cannot prove whether he has disclosed everything. In all equilibria, the biased expert sends messages containing arguments both for and against his preferred alternative. However, the decision maker is not influenced by the unfavorable arguments revealed by the biased expert. The latter is able to convince the decision maker to choose the biased expertʼs preferred alternative only if he reveals sufficiently many favorable arguments.

Despite the expectations of economists that the euro changeover would have no effect on prices, European consumers perceived the contrary. To shed some light on this puzzle, we develop a model of imperfect information in which cheaper goods experience higher price growth after the changeover. Retailers, aware of the consumers’ difficulties in adopting the new currency, use currency changeovers to increase profits by increasing prices. The euro– related inflation is higher the lower price transparency after the changeover. Using data on inflation (Eurostat) and price levels (Economist Intelligence Unit) we show that, although the euro changeover did not significantly increase inflation, it had distortionary effect on prices. After the changeover cheaper goods had higher inflation, and this effect was stronger in countries in which people found dealing with the new currency problematic.

We propose a model of delegated asset management that can explain empirical regularities observed in international markets: (i) the presence of home bias, (ii) the lower proportion of mutual funds investing domestically, and (iii) the higher ability and market value of mutual funds investing domestically. In the model, heterogeneous fund managers choose whether to specialize in domestic or foreign assets. Individual investors are uncertain about managers.abilities to generate abnormal returns, and they are more informed about domestic market than foreign market. As a result, they are better able to evaluate the ability of managers who specialize in domestic assets. This makes domestic investments less risky and generates home bias. Home bias is magnified by the endogenous choice of manager's specialization: since ability is rewarded more in the domestic market, higher ability managers invest domestically, making domestic assets more attractive to the investors.

This paper considers a dynamic bargaining game in which in every period, one of three alternatives has to be chosen: two extreme alternatives and a compromise. The compromise yields a payoff which is the average of the payoff of the two other alternatives, minus a constant term which parameterizes its inefficiency. As in Dziuda and Loeper (2010), preferences evolve over time, the interests of individuals are not perfectly aligned, and the previous agreement stays in place until a new agreement is reached. We show that in equilibrium, the compromise can arise with positive probability in every period when it is inefficient while it never arises when it is efficient.

We analyze a dynamic voting game with both pork-barrel programs and general interests policies. Legislators' preferences over pork-barrel spending reflect the geographic identity of their constituency, and their policy preferences in a given period depend on their ideology and on a stochastic shock. Consistent with Congressional practices, we assume that the general interest policy stays in place unless further legislative action is taken, while the district-specific spending programs need to be appropriated in every period. We show that under simple majority rule, the availability of pork-barrel programs is socially detrimental: it distorts an otherwise efficient decision process. However, under supermajority rule, the availability of targeted spending can be a effective lubricant to the legislative bargaining process: it makes the bargaining outcome more responsive to shocks.

This paper analyzes an ongoing bargaining situation in which i) preferences evolve over time, ii) the interests of individuals are not perfectly aligned, and iii) the previous agreement becomes the next status quo and determines the payoffs until a new agreement is reached. We show that the endogeneity of the status quo exacerbates the players' conflict of interest and decreases the responsiveness of the bargaining outcome to the environment. Players with arbitrarily similar preferences can behave as if their interests were highly discordant. When players become very patient, the endogeneity of the status quo can bring the negotiations to a complete gridlock.

Under mild regularity conditions, fixing the status quo throughout the game via an automatic sunset provision improves welfare. The detrimental effect of the endogeneity of the status quo can also be mitigated by concentrating decision rights, for instance, by lowering the supermajority requirement.