In dynamic principal-agent relationships, it is sometimes observed that the agent's reward depends only on the final outcome. For example, a student's grade in a course quite often depends only on the final exam score, where the performance in the problem sets and the mid-term exam is ignored....

In the model there are two types of financial auditors with identical technology, one of which is endowed with a prior reputation for honesty. We characterize conditions under which there exists a 'two-tier equilibrium' in which 'reputable' auditors refuse bribes offered by clients for fear of...

The purpose of this paper is to investigate contract renegotiation in multi-agent situations where risk averse agents negotiate a contract offer to the principal after they observed a common, unverifiable perfect signal about their actions. Renegotiation gives the agents gains from mutual insurance.

The purpose of this paper is to examine how tasks should be allocated in a simple hierarchy consisting of an organizational designer and subordinates, in the framework of a principal-agent relationship with moral hazard.

The purpose of the paper is to investigate how side track (or collusion) among agents affects the principal's welfare in a hidden action model. We assume that the agent's actions are mutually observable but not contradictable among them and hence direct coordination of actions via side...

We consider a two good world where an individual i with income mi has utility function u (x, y), where x ∈ [0, ∞) and y ∈ {0, 1}. We first derive the valuation (maximum price that he is willing to pay for the object) for good y as a function of his income. Then we consider the following...

We analyze a cheap talk model in which an informed sender and an uninformed receiver engage in finite-period communication before the receiver chooses a project. During the communication phase, in each period, the sender sends a cheap talk message and the receiver voluntarily pays money for the...

In this paper we analyze a cheap talk model with a partially informed receiver. In clear contrast to the previous literature, we find that there is a case where the receiver's prior knowledge enhances the amount of information conveyed via cheap talk. The point of departure is our explicit focus...

In most firms, if not all, workers are divided asymmetrically in terms of authority and Responsibility. In this paper, we view the asymmetric allocations of authority and responsibility as essential features of hierarchy and examine why hierarchies often prevail in organizations From that...

We analyze a rationale for official authorization of patient dumping in the prospective payment policy framework. We show that when the insurer designs the healthcare payment policy to let hospitals dump high-cost patients, there is a trade-off between the disutility of dumped patients (changes...