Two main results have been obtained on the literature on contractual solutions to the hold-up problem. First, a contract specifying a price and quantity of the final good to be traded will, fairly generally, induce efficient investments if these are `selfish' in nature, i.e., each party's...

Many people are fired from their jobs for poor performance. However, it is difficult to distinguish whether they are fired because they are not well suited for their job (sorting explanation) or because the firms are trying to provide incentives for effort (incentive explanation). This paper...

In principal-agent settings with moral hazard, the fact that agents are altruistic vis-a-vis third parties (e.g. their family) modifies incentive costs. We derive sufficient conditions for the principal to benefit from altruism. They bear on how altruism affects the agent's marginal rate of...

This paper examines whether recent international policy initiatives to facilitate financial rescues in emerging market countries have influenced debtors' incentives to access official sector resources. The paper highlights a country's systemic importance as a key characteristic that drives...

This paper extends the principal-agent model to determine the size of the firm as measured by the number of agent hired. Hiring more agents results in benefits and costs to the principal. The benefits are gains from specialization: higher productivity can be achieved if, as the number of agents...

Collective action clauses (CACs) are provisions specifying that a supermajority of bondholders can change the terms of a bond. We study how CACs determine governments’ fiscal incentives, sovereign bond prices and default probabilities in environments with and without contingent debt and...

To understand the consequences of the presence of international safety nets on governments' incentives to undertake reforms, we model IFIs´ interventions as country insurance policies. We find that country insurance (especially when made contingent on negative external shocks) is more likely...

In this paper we investigate the principal-multi agent relationship with moral hazard where a risk neutral principal contracts with multiple risk averse agents whose actions are unobservable to the principal. We show that the well--known trade--off between incentive and risk sharing can be...

We study how firm boundaries are affected by the reduction in search costs when business-to-business electronic markets are adopted. Our paper analyzes a multi-tier industry in which upstream parts suppliers incur procurement search costs, and downstream manufacturers incur incentive contracting...

The recent wave of financial crises has fueled the debate on the effect of IFIs intervention on governments' incentives to undertake reforms. In this paper we treat this intervention more generally as a country insurance contract, and examine its implications in a stylized set-up. More...