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Article
The reset premium: Option value under asymmetric price commitment

We show that a one-sided price-adjustment rule, with free price cuts but a fixed daily reset for price increases, raises the reset price even under risk neutrality, mean-zero wholesale cost shocks, and perfect consumer information. The mechanism is option-theoretic: a higher reset price preserves pass-through in adverse cost states, while favora…

Economics
By Harry J. Paarsch and Karl Schmedders
in Economic Letters
September 2026, vol. 268, 113146, https://doi.org/10.1016/j.econlet.2026.113146
The reset premium: Option value under asymmetric price commitment
By Harry J. Paarsch and Karl Schmedders
in Economic Letters September 2026, vol. 268, 113146, https://doi.org/10.1016/j.econlet.2026.113146
Summary
We show that a one-sided price-adjustment rule, with free price cuts but a fixed daily reset for price increases, raises the reset price even under risk neutrality, mean-zero wholesale cost shocks, and perfect consumer information. The mechanism is option-theoretic: a higher reset price preserves pass-through in adverse cost states, while favora…
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Article
The tragedy of the horizon: A contracting account

The “tragedy of the horizon” captures the gap between long-horizon climate damages and the shorter horizons of corporate decision-making. We provide a contracting account of this idea using a deliberately standard CARA-normal moral-hazard model. Under full commitment, the optimal linear contract can condition on long-horizon outcomes; horizon mi…

Finance Economics
By Christos Cabolis and Karl Schmedders
in Economic Letters
September 2026, vol. 268, 113154, https://doi.org/10.1016/j.econlet.2026.113154
The tragedy of the horizon: A contracting account
By Christos Cabolis and Karl Schmedders
in Economic Letters September 2026, vol. 268, 113154, https://doi.org/10.1016/j.econlet.2026.113154
Summary
The “tragedy of the horizon” captures the gap between long-horizon climate damages and the shorter horizons of corporate decision-making. We provide a contracting account of this idea using a deliberately standard CARA-normal moral-hazard model. Under full commitment, the optimal linear contract can condition on long-horizon outcomes; horizon mi…
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Research Information & Knowledge Hub for additional information on IMD publications