This paper studies the soft budget constraint problem in a principal-agent model. The agent screens projects of and makes initial investment in the projects that have passed the screening. He then finds the types of the funded projects and decides to close some of the ex post inefficient ones...

A large literature has documented impressive productivity growth in China's state enterprises during the reform. The evidence has been used to support the view that China's enterprise reform has been successful. We cast doubt on this view by arguing that productivity is not a reliable measure of...

An equilibrium model of labor contracts under asymmetric information is developed. A profit-maximizing firm offers a wage but retains the right to lay off the worker based on its private observation of the worker's productivity ex post. The worker invests in specific human capital, unobservable...