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...

We reconsider the property rights approach to the theory of the firm based on incomplete contracts. We explore the implications of different degrees of relationship-specificity when there are two parties, A and B, who can make investments in physical capital (instead of human capital). If...

Consider a non-governmental organization (NGO) that can invest in a public good. Should the government or the NGO own the public project? In an incomplete contracting framework with split-the-difference bargaining, Besley and Ghatak (2001) argue that the party who values the public good most...

The government and a non-governmental organization (NGO) can invest in the provision of a public good. Besley and Ghatak (2001) have argued that in an incomplete contracting framework, the party who values the public good most should be the owner. We show that this conclusion relies on their...

In the property rights approach to the theory of the firm (Hart, 1995), parties bargain about whether or not to collaborate after non-contractible investments have been made. Most contributions apply the regular Nash bargaining solution. We explore the implications of using the generalized Nash...

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.

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...

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...

This paper sets up a three-stage (R&D, technology licensing, and output) oligopoly game in which only one of the firms undertakes a cost-reducing R&D and may license the developed technology to the others by means of a two-part tariff (i.e., a per-unit royalty and an upfront fee) contract. It is...