This paper studies the optimal contract offered by a risk-neutral principal to a risk-averse agent when the agent's hidden ability and action both improve the probability of the project being successful. We show that if the agent is sufficiently prudent and able, the principal induces a higher...

This paper studies the optimal contract offered by a risk-neutral principal to a risk-averse agent when the agent’s hidden ability and action both improve the probability of the project being successful. We show that if the agent is sufficiently prudent and able, the principal induces a higher...

In a procurement first-price sealed-bid auction with risk-averse suppliers, we determine the conditions under which the buyer has an incentive to grant a supplier a right of first refusal. We show that this clause can lower the buyer’s expected cost when suppliers (the incumbent and new...