This paper studies a principal-agent relation in which the principal's private information about the agent's effort choice is more accurate than a noisy public performance measure. For some contingencies the optimal contract has to specify ex post inefficiencies in the form of inefficient...

When workers are faced with the threat of unemployment, their relationship with a particular firm becomes valuable. As a result, a worker may comply with the terms of a relational contract that demands high effort even when performance is not enforceable by a third party. But can relational...

Financial markets and macroeconomic environments are often characterized by positive externalities. In these environments, transparency may reduce expected welfare from an ex-ante point of view: public announcements serve as a focal point for higher-order beliefs and affect agents’...

We consider a Rothschild-Stiglitz-Spence labour market screening model and employ a centralised mechanism to coordinate the efficient matching of workers to firms. This mechanism can be thought of as operated by a recruitment agency, an employment office or head hunter. In a centralised...

This paper studies sabotage in tournaments with at least three contestants, where the contestants know each other well. Every contestant has an incentive to direct sabotage specifically against his most dangerous rival. In equilibrium, contestants who choose a higher productive effort are...

We formalize a conception of authority, which is commonly defined as the right of controlling a person’s actions embedded in human assets in sociology. Due to the inalienable property of human assets, the contractible formal authority is hard to verify and enforce, while real authority...

We present a field experiment to assess the effect of own and peer wage variations on actual work effort of employees with hourly wages. Work effort neither reacts to an increase of the own wage, nor to a positive or negative peer comparison. This result seems at odds with numerous laboratory...

When investments are non-verifiable, inducing cooperative investments with simple contracts may not be as difficult as previously thought. Indeed, modeling 'expectation damages' close to legal practice, we show that the default remedy of contract law induces the first best. Yet, in order to...

updated version of paper no 55

We empirically investigate if tournaments between heterogeneous contestants are less intense. To test our hypotheses we use professional sports data from the TOYOTA Handball-Bundesliga, the major handball league in Germany. Using either differences in betting odds or rankings to measure ability...