Work and trade relationships are often governed by relational contracts, in which incentives for cooperative action today stem from the prospective future benefits of the relationship. In this paper, we study how reductions in clarity about the financial consequences of actions, induced by...

This paper studies how pay transparency affects organizations that reward employees based on their efforts (i.e., using "subjective performance evaluation"). First, we show that transparency triggers social comparisons that require the organization to pay its employees an "envy premium". This...

We show that concerns for fairness may have dramatic consequences for the optimal provision of incentives in a moral hazard context. Incentive contracts that are optimal when there are only selfish actors become inferior when some agents are concerned about fairness. Conversely, contracts that...

This paper investigates relational incentive contracts with continuous, privately-observed agent types that are persistent over time. With fixed agent types, full separation is not possible when continuation equilibrium payoffs following revelation are on the Pareto frontier of attainable...

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...

We analyze the optimal contract between a risk-averse manager and the initial shareholders in a two-period model where the manager's investment effort, carried out in period 1, and her current effort, carried out in period 2, both impact the second-period profit, so that it may be difficult to...

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...

This paper studies a contracting problem where agents' cost of actions is private information. With two actions, this leads to a two-dimensional screening problem with moral hazard. There is a natural one-dimensional ordering of types when there is both adverse selection and moral hazard....

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...