Manifest contracts track precise properties by refining types with predicates—e.g., {x :Int | x > 0} denotes the positive integers. Contracts and polymorphism make a natural combination: programmers can give strong contracts to abstract types, precisely stating preand post-conditions while hiding implementation details—for example, an abstract type of stacks might specify that the pop operation...

This paper analyses the consequences of trade liberalisation on firms’ internal organisation, with formal and informal arrangements. I extend the ’relational contract’ approach of Baker, Gibbons, and Murphy (2002) in an open economy set-up. I find that freer trade in final goods increases the quasi-rents from suppliers’ specific investments, leading to an increase in outsourcing. When trade lib...

Relational Contracts, Taxation and the Household This paper applies the theory of relational contracts to make precise the idea that because households are engaged in a repeated non-cooperative game, Pareto efficient outcomes can be supported by self interest, given the specific pattern of specialisation and exchange which exists in the household. The household’s choice of a particular solution...

This paper studies a relational contracting model in which the agent is protected by a limited liability constraint. The agent’s effort is his private information and affects the output stochastically. We characterize the optimal relational contract and compare the dynamics of the relationship with that under the optimal long-term contract. Under the optimal relational contract, the relationshi...

Firms often use both objective/verifiable and subjective/non-verifiable performance measures to provide employees with effort incentives. We study a principal/multi-agent model in which a verifiable team-based performance measure and nonverifiable individual performance measures (one for each agent) are available for contracting. A problem with tying rewards to non-verifiable measures is that t...

We derive conditions under which limits on executive compensation can enhance efficiency and benefit shareholders (but not executives). Having its hands tied in the future allows a board of directors to credibly enter into relational contracts with executives that are more efficient than performance-contingent contracts. This has implications for the ideal composition of the board. The analysis...

We derive conditions under which state-imposed limits on executive compensation can enhance efficiency and benefit shareholders (but not executives). Having their hands tied in the future allows a board of directors to credibly enter into relational contracts with executives that are more efficient than performance-based contracts. This in turn can have implications for firm strategy and the id...