When do participants in a market have the incentive to enter into agreements that exclude potential entrants? This paper synthesizes, extends and illustrates the theory of exclusionary contracts. In a model of incumbent contracts with downstream buyers, a “Chicago benchmark”yields no incentive for exclusionary long term contracts. Departures from the benchmark in each of three directions yield ...

We present three smart contracts that allow a briber to fairly exchange bribes to miners who pursue a mining strategy benefiting the briber. The first contract, CensorshipCon, highlights that Ethereum’s uncle block reward policy can directly subsidise the cost of bribing miners. The second contract, HistoryRevisionCon, rewards miners via an in-band payment for reversing transactions or enforcin...

This paper studies an infinite horizon adverse selection model with an underlying two-state Markov decision process. It introduces a novel approach that constructs the continuation payoff frontier exactly, as the fixed point of a functional operator. If the model supports an incentive compatible first-best (ICFB) contract, the continuation payoff frontier can be efficiently constructed, and the...

1 Market-based transmission investments can play a role in competitive electricity markets. A short-term electricity market coordinated by a system operator provides a foundation for a competitive electricity market. In this setting, locational price differences define the opportunity cost of transmission. The potential to arbitrage these same price differences provides a market incentive for t...

We present a theory of the dynamics of a firm’s investment in the presence of imperfect capital markets and optimal long-term contracts. The class of imperfections that we consider involves the incentive problems that accompany external financing. The analysis is sufficiently general to encompass a range of such incentive problems. We derive a number of results regarding firms’ investment decis...

In the supply-chain literature, an increasing body of work studies how suppliers can use incentive schemes such as quantity discounts to influence buyers’ ordering behaviour, thus reducing the supplier’s (and the total supply chain’s) costs. Various functional forms for such incentive schemes have been proposed, but a critical assumption always made is that the supplier has full information abo...

This paper explores how changes in monetary staff incentive contracts affect the productivity of credit officers within microfinance institutions. The study uses a unique data set from five microfinance institutions that includes productivity data at the credit officer level for several months before and after a change in the incentive schemes. In each of the institutions, the monetary incentiv...

Ishiguro(2004) shows that discriminatory wage schemes are optimal among collusion-proof contracts under relative performance evaluation when agents collude. However, that analysis depends on the assumption that the agents cannot observe their performances. We investigate how optimal contracts should be modified when the agents observe the realized firm value. We show that the optimal collusion-...

The blockchain underlying Bitcoin is moving beyond money and into record keeping and law. This essay explores recent efforts to harness the ledger-like qualities of blockchains to create contracts. Along the way, it considers the forms and functions of other historical examples of ledgers, the dynamics of visibility and publicity, and shifts in the incentive structure of blockchain systems. Dis...

In traditional bank theoretic modelling, agents are assumed to be perfectly rational. This assumption ignores the huge amount of evidence for systematic biases in individual decision making. In this paper, we present a model of collateralization under asymmetric information in which banks correctly anticipate that entrepreneurs are loss averse. Given a moral hazard problem of effort choice, we ...