When penalties for first-time offenders are restricted, it is typically optimal for the lawmaker to overdeter repeat offenders. First-time offenders are then deterred not only by the (restricted) fine for a first offense, but also by the prospect of a large fine for a subsequent offense. Now...

A principal hires an agent to provide a verifiable service. Initially, the agent can exert unobservable effort to reduce his disutility from providing the service. If the agent is free to waive his right to quit, he may voluntarily sign a contract specifying an inefficiently large service level,...