Theory & Model Craft (jleo-theory-model)

When to trigger

• A verbal institutional argument needs to be formalized into testable predictions
• A formal model exists but its assumptions or comparative statics are not tied to the institution it describes
• A referee asks "what is the model actually adding beyond the intuition?"
• The paper is a pure-theory JLEO submission and must deliver a sharp, novel institutional mechanism
• An empirical paper needs a minimal model to define the estimand and generate the sign predictions it tests

The JLEO modeling tradition

JLEO is unusual in welcoming both standalone formal theory and empirical work disciplined by a model, but in both cases the model must be a model of an institution or organization, in one of the house lineages:

• Transaction-cost economics (Williamson): asset specificity, uncertainty, frequency → governance choice (market / hybrid / hierarchy). The model's job is to predict which governance form economizes on transaction costs.
• Incomplete contracts / property rights (Grossman–Hart–Moore): residual control rights, non-contractible investment, ownership allocation. The model predicts who should own what.
• Principal–agent / mechanism design: incentive provision under moral hazard or adverse selection inside organizations and contracts.
• Positive political economy / political agency: legislators, courts, bureaucrats, voters as strategic actors; separation of powers, delegation, credible commitment, agenda control.

Pick the lightest model that delivers the institutional prediction; a model that adds notation but no new comparative static is decorative and JLEO referees say so.

Right-sizing the model

Craft moves JLEO referees reward

1. Tie every assumption to the institution. An assumption that is mathematically convenient but institutionally implausible (e.g., fully contractible quality in a hold-up story) draws fire. Justify the non-contractibility, the timing, the information structure from the institution.
2. Make the comparative statics the deliverable. State the testable predictions before the data appear (no HARKing the theory). For a theory paper, state which prediction is the surprising one.
3. Earn the equilibrium concept. If you use a refinement (e.g., a particular off-path belief, a specific bargaining protocol), say why that protocol fits the institution and what changes under alternatives.
4. Show robustness of the mechanism. Demonstrate the key result is not an artifact of a knife-edge assumption; relegate the general case to an appendix if it clutters.
5. Connect to the empirics (if mixed). The model should define the estimand the empirical section recovers, and the parameters should map to measurable institutional features.

Checklist

• The model is a model of a specific institution/organization in a JLEO lineage (TCE / GHM / agency / PPE)
• Every substantive assumption is justified from the institutional setting, not just tractability
• The testable comparative statics are stated before the empirics; the surprising prediction is flagged
• The equilibrium concept / bargaining protocol fits the institution and alternatives are discussed
• For theory papers: proofs complete and in the appendix; the main text carries intuition
• For mixed papers: the model defines the estimand and maps parameters to measurable features

Anti-patterns

• A "model" section that adds notation but no new prediction or governance comparison
• Assuming away the non-contractibility / specificity that the institution actually exhibits, to gain tractability
• Comparative statics derived after seeing the empirical results (HARKing the theory)
• Borrowing an off-the-shelf principal-agent setup with no institutional content specific to the paper
• A knife-edge result presented as the headline with no robustness of the mechanism

Worked vignette (illustrative)

A paper asks why public agencies use long-term sole-source contracts despite the apparent loss of competition. A bare auction model says competition is always better. A JLEO model adds non-contractible quality and relationship-specific investment: under high specificity, the long-term relationship sustains quality that competitive re-bidding would destroy, so sole-sourcing economizes on transaction costs above a specificity threshold. The comparative static — sole-sourcing rises with specificity and with the cost of quality verification — is then taken to procurement data, where the model defines exactly what to measure.

Output format

【Lineage】TCE / incomplete-contracts-GHM / principal-agent / political-agency
【Institutional object modeled】the firm boundary / ownership / incentive scheme / political institution
【Key assumptions (institutionally justified)】[...]
【Testable comparative statics】[stated pre-data]; surprising prediction: ___
【Equilibrium concept + why it fits】[...]
【Role in paper】standalone theory / disciplines the empirics (defines estimand: ___)
【Next skill】jleo-robustness