We provide a new class of counter-examples to existence in a simple moral hazard problem in which the first-order approach is valid. In contrast to the Mirrlees example, unbounded likelihood ratios on the signal technology are not central. Rather, our examples center around the behavior of the utility function as utility diverges to negative infinity. For any utility function, such as ln(w), in...

We consider a model in which a principal must both repay a loan and motivate an agent to work hard. Output is non-contractible, so the principal faces a commitment problem with both her creditor and her agent. In a profit-maximizing equilibrium, the agent’s productivity is initially low and increases over time. Productivity continues increasing even after the debt has been repaid, eventually co...

This paper examines the e¤ects of social ties on governance. Social ties are per se neutral and merely act as incentive bridges that transmit incentives between individuals. Whether such transmission of incentives improves or undermines governance depends on the particular incentives transmitted. We demonstrate this through a delegated monitoring model where the supervisor is friends with the a...

A government agency wants an infrastructure-based public service to be provided. Our experimental study compares two di¤erent modes of provision. In a public-private partnership, the two tasks of building the infrastructure and operating it are delegated to one private contractor (a consortium), while under traditional procurement, these tasks are delegated to separate contractors. We …nd suppo...

This paper studies the optimality of securitized debt when information acquisition is endogenous and exible. A seller designs an asset backed security and a buyer decides whether to buy it to provide liquidity. Rather than treating the seller as an insider endowed with information, we assume no information asymmetry before bargaining. The buyer has an expertise in acquiring information of the f...

We use a Barro–Becker model of endogenous fertility, in which parents are subject to idiosyncratic shocks that are private information (either to labor productivity or taste for leisure), to study the efficient degree of consumption inequality in the long run. The planner uses the trade-off between family size and future consumption and leisure, to provide incentives for workers to reveal their...

The single-crossing assumption simplifies the analysis of screening models as local incentive compatibility becomes sufficient for global incentive compatibility. If single crossing is violated, global incentive compatibility constraints have to be taken into account. This paper studies monotone solutions in a screening model that allows a one-time violation of single crossing. The results show...

Contracts often take the form of options: oil fields can be abandoned, planning permission may go unused, and acquired firms can be liquidated. We consider a seller who auctions a dynamic option among N agents. After the auction, the economy evolves and the winning bidder chooses both if and when to execute the option. The revenue-maximising auction consists of an up-front bid and a contingent ...

Growing economic and psychological evidence documents effects of target setting on levels of effort and risk-taking, even in the absence of a monetary reward for attaining the target. I explore a principal-agent environment in which the principal sets the agent a performance target, and the agent’s intrinsic motivation to work is influenced by their performance relative to the target. When the ...

On the Optimality of a Minimum Wage: New Insights from Optimal Tax Theory We build a theoretical model to study whether a minimum wage can be welfare-improving if it is implemented in conjunction with an optimized nonlinear income tax. We consider this issue in a framework where search frictions on the labor market generate unemployment. Workers differ in productivity. The government does not o...