A typical problem in financial contracting is the so-called risk-shifting incentive problem. In many cases, this problem in financial contracting, which typically arises in the context of a lender-borrower relationship, means the borrower’s incentive to influence the risk of his project. In particular, the shareholders of a levered firm will behave so as to maximize the value of their shares si...

In a quasi-linear environment we characterize the boundaries of the set of transfers which implement a given allocation rule (extremal transfers). Doing so allows us to generalize and unify several existing results of the mechanism design literature. More specifically, our approach delivers a characterization result for the set of implementable allocation rules. Second, we obtain an exact chara...

A so-called "incentive contract" is a linear payment schedule, where the buyer pays a fixed fee plus some proportion of audited project cost. That remaining proportion of project cost borne by the seller is called the "sharing ratio." A higher sharing ratio creates more incentive to reduce costs. But it also makes the agent bear more cost uncertainty, requiring as compensation a greater fixed f...

Trading goods online has numerous advantages. One that is particularly compelling is that online merchants can offer their goods at lower prices compared to their offline counterparts. The physical distance between buyers and sellers, however, also leads to problems of trust. Consider the online auction site eBay as an example: its procedure is such that the winning bidder (henceforth the buyer...