We propose a model based on competitive markets in order to analyse an economy with several principals and agents. We model the principal-agent economy as a two-sided matching game and characterise the set of stable outcomes of this principal-agent matching market. A simple mechanism to...

Student loans, even income-contingent ones, are not optimal. Potential university students with the appropriate characteristics should be offered a scholarship, dependent on both need and merit. The award of the scholarship should be conditional on the choice of university degree, but students...

In recent years stock option plans (SOPs) have become an important component of managerial remuneration in most industrialized countries. Commonly accepted, corporate as well as individual taxes have a major impact on the costs of a SOP. In contrast, the tax influence on the benefits of a SOP...

We study the private gains to bureaucrats from their political alignment with elected politicians. Whereas existing studies generally rely on proxies for politician-bureaucrat political alignment, a rare feature of our data allows measuring it directly since 27% of bureaucrats ran for political...

Trading the cost of better performance off the probability that an imprecise test’s performance estimate falls short of the pass threshold, an assessee may perform above the threshold (and fear failure because of negative errors) or below it (and hope to pass because of positive errors). This...

A worker's utility may increase in his own income, but envy can make his utility decline with his employer's income. Such behavior may call for high-powered incentives, so that increased effort by the worker little increases the income of his employer. This paper uses a principalagent model to...

Empirically, compensation systems generate substantial effort despite weak monetary incentives. We consider reciprocal motivations as a source of incentives. We solve for the optimal contract in the basic principal-agent problem and show that reciprocal motivations and explicit performance-based...

NGO aid is still widely believed to be superior to official aid (ODA). However, the incentives of NGOs to excel and target aid to the poor and deserving are increasingly disputed. We contribute to the emerging literature on the allocation of NGO aid by performing panel Tobit estimations for...

The relationship between competition and performance-related pay has been analyzed in single-principal-single-agent models. While this approach yields good predictions for managerial pay schemes, the predictions fail to apply for employees at lower tiers of a firm’s hierarchy. In this paper, a...