An effective punishment scheme to reduce extramarital affairs: an economic approach

By using a dynamic stochastic optimization model, this paper shows that the existence of punishment does not necessarily deter extramarital affairs. This study may help to explain why extramarital affairs are a common phenomenon in most societies even though punishment exists. This study also has an implication for family laws: extramarital affairs can be effectively reduced if the legal punishment scheme is designed in the way that makes the adulterer’s expected loss increase with the level of adultery at an increasing or constant rate.      

The legacy of Bismarck

Many mechanisms (such as auctions) efficiently allocate an asset to the firm which values it most highly. But sometimes the asset’s owner may benefit from the transfer only if the asset is not too valuable to potential buyers. In this setting, we examine the efficiency of mechanisms when the potential buyers have private information about the asset’s value. We show that rent seeking, and lobbying, rather than merely wasting resources, can lead to allocations which are close to efficient.