In this paper the impact of noise on dynamic adverse selection in principal-agent relationships is examined. Significant deviations in terms of equilibrium actions and payments occur, when compared to deterministic environments. Information dissipates slowly, so payments to agents who stand to...

We model an agency relationship in which the agent's cost is non-monotonic with respect to type and the type is correlated with a public ex-post signal. The principal can use lotteries to exploit the type-signal correlation within the limit of the agent's liability. We establish conditions for...

This paper studies the structure of optimal finance contracts in an agency model of outside finance, when investors possess private information. We show that, depending on the intensity of the entrepreneur's moral hazard problem, optimal contracts induce full, partial, or no revelation of the...

I document the variation in measurement of financial covenants, focusing on three measurement rules: earnings (EBITDA vs. EBIT), firm value (including or excluding intangible assets) and inclusion of escalator clauses (provisions that increase the threshold of net worth covenants). I find that...