We study the length of agreements in a market in which infinitely-lived firms contract with agents that live for two periods. Firms differ in the expected values of their projects, as do workers in their abilities to manage projects. Worker effort is not contractible and worker ability is...

In this paper we develop a two period model of a credit market to study the interaction between a monopolistic moneylender and a subsidized microfinance institution. We assume that lenders face a moral hazard problem that is diminished as agents are able to take increased equity positions in...

The paper studies a model of delegated search. The distribution of search revenues is unknown to the principal and has to be elicited from the agent in order to design the optimal search policy. At the same time, the search process is unobservable, requiring search to be self-enforcing. The two...

This paper presents a DSGE model with banks that face moral hazard in management. Banks receive demand deposits and fund investment projects. Banks are subject to potential withdrawals by depositors which may force them into early liquidation of their investments. The likelihood of this...

This paper analyses the feasibility of profit and loss sharing (PLS) contracts in presence of moral hazard between the principal (financier) and the agent (entrepreneur). It shows that introducing a rule for sharing profits and losses in contingence with the outcome of the entrepreneur’s...

The paper identifies conditions under which ‘inefficient’ favouritism emerges as an optimal outcome even when the principal do not exhibit ex-ante preferential bias for any particular agent. We characterize how the optimal incentive scheme is influenced in the presence of status incentives....

A principal should hire one agent to perform two sequential tasks when the tasks are conflicting (i.e., a first-stage success makes second-stage effort less effective), while she should hire two different agents when the tasks are synergistic.

This paper examines a multi-agent moral hazard model in which agents have expectation-based reference-dependent preferences `a la K˝oszegi and Rabin (2006, 2007). The agents’ utilities depend not only on their realized outcomes but also on the comparisons of their realized outcomes with their...

This study analyzes a continuous-time N-agent Brownian hidden-action model with exponential utilities, in which agents' actions jointly determine the mean and the variance of the outcome process. In order to give a theoretical justi¯cation for the use of linear contracts, as in Holmstrom and...

The decision to cooperate within R&D joint ventures is often based on `expert advice.' Such advice typically originates in a due diligence process, which assesses the R&D joint venture's profitability, for example, by appraising the achievability of synergies. We show that if the experts who...