The Revelation Principle is the cornerstone of the theory of mechanism design. It shows that seemingly complex problems can be viewed as programming problems with constraints that give the agent the right incentives to truthfully reveal his private information. Needless to say, the theory is widely applicable. Nevertheless, one of the main assumptions underlying the Revelation Principle is not ...

This paper presents a principal-agent model where the agent has multiple, or imprecise, beliefs. We model this situation formally by assuming the agent’s preferences are incomplete. One can interpret this multiplicity as limited knowledge of the surrounding environment. In this setting, incentives need to be robust to the agent’s beliefs. We study whether robustness implies simplicity. Under mi...

One of the new avenues in the study of political corruption is that of neo-institutional economics, of which the principal-agent theory is a part. In this article a principal-agent model of corruption is presented, in which there are two principals (one of which is corrupting), and one agent (who is corrupted). The behaviour of these principals and agent is analysed in terms of the costs and be...

Using a gift exchange experiment, we show that the ability of reciprocity to overcome incentive problems inherent in principal-agent settings is greatly reduced when the agent’s effort is distorted by random shocks and transmitted imperfectly to the principal. Specifically, we find that gift exchange contracts without shocks encourage effort and wages well above standard predictions. However, t...

The principal-agent problem concerns delegation in the absence of trust. Given a principal and an agent with different value structures, the principal wants to motivate the agent to address the principal’s aims by providing appropriate incentives. We address this problem in the context of a real-world complication, where the principal and agent lack a common problem frame. This context is espec...

This thesis focuses on the creation of a high-performance service operations organization. As organizations increasingly compete on service quality, increased attention has been given to measuring, tracking, and improving customer satisfaction. This thesis 1) provides a novel framework for service quality improvement and 2) explores concepts in game theory, relational contracts, and incentive m...

We consider the problem of when to deliver the contract payoff, in a continuoustime Principal-Agent setting, in the presence of moral hazard and/or adverse selection. The principal can design contracts of a simple form that induce the agent to ask for the payoff at the time of principal’s choosing. The optimal time of payment depends on the agent’s and the principal’s outside options. Examples ...

We analyze conditional optimization problems arising in discrete time Principal-Agent problems of delegated portfolio optimization with linear contracts. Applying tools from Conditional Analysis we show that some results known in the literature for very specific instances of the problem carry over to translation invariant and time-consistent utility functions in very general probabilistic setti...

The appeals process is employed in many organizations, including administrative agencies, regulatory authorities, sports organizations, and private companies. This paper examines the dual role of the appeals process in correcting errors and inducing compliance in principal-agent relationships in the presence of imperfect performance evaluation. Some surprising results emerge. For example, appea...

In a seminal paper, B. R. Holmstro m and P. R. Milgrom (1987, Econometrica 55, 303 328) examine a principal-agent model in which the agent continuously controls the drift rate of a Brownian motion. Given a stationary environment, they show that the optimal sharing rule is a linear function of aggregated output. This paper considers a variant of the Brownian model in which control revisions take...