A standard tournament contract specifies only tournament prizes. If agents’ performance is measured on a cardinal scale, the principal can complement the tournament contract by a gap which defines the minimum distance by which the best performing agent must beat the second best to receive the...

I study the evolution of reciprocity in a gift-exchange game. In equilibrium, wage offers induce maximal effort but there is strong inequity in favor of the workers. The result suggests that norm-based efficiency wages may be unstable over time.

Mandatory profit sharing can represent a Pareto-improvement if labour supply is excessive due to relative consumption effects. Profit sharing reduces wages. If the rise in profit income keeps total income constant, there will only be a Pareto-improving substitution effect.

The government wants two tasks to be performed. In each task, unobservable effort can be exerted by a wealth-constrained private contractor. If the government faces no binding budget constraints, it is optimal to bundle the tasks. The contractor in charge of both tasks then gets a bonus payment...

I study the trade-off between private and verifiable interim performance evaluations under uncertainty. More uncertainty leads to higher agency costs if the interim evaluation is public and verifiable but lower agency costs if the interim evaluation is private and unverifiable.

We revisit job design with sequential tasks and outcome externalities from a different perspective, extending Schmitz (2013a). When two sequential tasks need to be performed by wealth-constrained agents, the principal can hire only one agent or two different agents. When there exists an outcome...

Without sacrificing tractability, we analyze the effect of fat-tailed events such as catastrophes on the optimal compensation contract between a principal and an agent. The optimal contract depends on all the moments and not just the variance.

Even risk-neutral individuals can insure themselves against crimes by combining direct expenditure on security with costly diversification. In such cases — and even when one of these options is infeasible — greater policing often actually encourages private precautions.

This paper presents an extension of the model in Jaimovich [Jaimovich, E., 2010. Adverse selection and entrepreneurship in a model of development. Scandinavian Journal of Economics 112, 77–100] and generalizes his results by relaxing key assumptions in his analysis.

We study a contracting problem where a principal delegates the decision to implement a “project” to an agent who obtains private information about the value of the project before making the implementation decision. Moral hazard arises because the agent gets private random non-contractible...