The following is a model of psychological contracting with unmonitorable performance, implicit o¤ers, and screening for non-performance by the announcement of the expectation of performance. It is motivated by the $250 billion prescription drug industry, which spends $19 billion per year on marketing to US doctors, mostly on ‘gifts’, and often, as at Yale, with no monitoring for reciprocation. ...

Contract manufacturing enables intellectual property holders to enjoy scale economies, reduce labor costs and free up capital. However, in many scenarios contract manufacturing is a double-edged sword, rife with entrenchments, threats of predation or hold up. I explore these contract manufacturing problems in a non-recursive relational contract setting. These non-recursivities appear in at leas...

This paper investigates how a pair of signals about the type of the agent can be compared in the classical principal agent model with adverse selection. Signal comparison in this model has two distinctive features that make it di cult to directly apply the results from decision theory: timing of the game and the number of incentive compatibility constraint. The signal in the model takes the for...

This paper models two key roles of subjective performance evaluations: their incentive role and their feedback role. The paper shows that the feedback role makes subjective pay feasible even without repeated interaction, as long as there exists some veri…able measure of performance. It also shows that while subjective pay is helpful, it cannot achieve full e¢ ciency. However, fully e¢ cient inc...

We consider a model in which a principal may delegate the choice of a project to a better informed agent. The preferences of the agent and the principal about which project should be undertaken can be discordant. Moreover, the agent benefits from being granted more discretion in the project choice and may be motivated by reciprocity. We find that the impact of the agent's reciprocity on the dis...

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. A well-functioning public expenditure management (PEM) system...

This note identifies a moral hazard environment in which a piecewise linear compensation scheme is optimal. Both the principal and the agent have CARA utility, mean output is increasing in the agent’s noncontractible input, and output is distributed according to a Laplace distribution, which resembles a normal distribution (e.g. it is symmetric about the mean), but has fatter tails. The key pro...

Removal of flap DNA intermediates in DNA replication and repair by flap endonuclease-1 (FEN-1) is essential for mammalian genome integrity. Divalent metal ions, Mg(2+) or Mn(2+), are required for the active center of FEN-1 nucleases. However, it remains unclear as to how Mg(2+) stimulates enzymatic activity. In the present study, we systemically characterize the interaction between Mg(2+) and m...

This paper examines the efficiency of expectation damages as a breach remedy in a bilateral trade setting with renegotiation and relationship-specific investment by the buyer and the seller. As demonstrated by Edlin and Reichelstein (1996), no contract that specifies only a fixed quantity and a fixed per-unit price can induce efficient investment if marginal cost is constant and deterministic. ...

A principal sequentially delegates project adoption decisions to an agent, who can assess project quality but has lower standards than the principal. In equilibrium, the principal allows bad projects in the future to incentivize the agent to be selective today. The optimal contract, termed Dynamic Capital Budgeting, comprises two regimes. First, the principal provides an expense account to fund...