Half of the jobs in the U.S. feature pay-for-performance. We study nonlinear income taxation in a model where such contracts arise in private labor markets that are constrained by moral hazard frictions. We derive novel formulas for the incidence of arbitrarily nonlinear reforms of a given tax...

Trust between parties should drive the negotiation and design of contract: if parties did not trust each others' reaction to unplanned events, they might agree to pay higher costs of negotiation to complete contracts. Using a unique sample of U.S. principal-agent consulting contracts and a...

We analyze a multitasking model with a verifiable routine task and a skill-dependent activity characterized by moral hazard. Contracts negotiated by firm/employee pairs follow from Nash bargaining. High- and low-skilled employees specialize, intermediate productivity employees perform both...

We study an important mechanism underlying employee referrals into informal low skilled jobs in developing countries. Employers can exploit social preferences between employee referees and potential workers to improve discipline. The profitability of using referrals increases with referee stakes...

In many countries, lenders are not permitted to use information about past defaults after a specified period of time has elapsed. We model this provision and determine conditions under which it is optimal. We develop a model in which entrepreneurs must repeatedly seek external funds to finance a...

We analyze the optimal contract in static moral hazard situations, where the agent’s effort is not verifiable. We first present the main trade-offs of the principal-agent model. We cover the trade-off of incentives (motivation) vs. risk-sharing (efficiency), incentives vs. rents (when the...

The standard economic analysis of the insured-insurer relationship under moral hazard postulates a simplistic setup that hardly explains the many features of an insurance contract. We extend this setup to include the situation that the insured was facing at the time of the accident and the...

Half of the jobs in the U.S. feature pay-for-performance. We study nonlinear income taxation in a model where such contracts arise in private labor markets that are constrained by moral hazard frictions. We derive novel formulas for the incidence of arbitrarily nonlinear reforms of a given tax...

In this study, we examine two adjudication methods designed to resolve disputes between principals and agents concerning bonus payments in relationships characterized by moral hazard and where the parties have been forced to use soft, imprecise, and subjective information to align incentives....

We explore the determinants and effects of trust relationships between upstream suppliers and downstream producers. Using unique survey data on individual supplier-buyer relationships in the German automotive industry, we show, by means of different measures of supplier-buyer trust, that higher...