We examine contractual design in a principal-agent model under two forms of limited liability: nonnegative constraints on the transfer payments to, and the profits of, the agent. We show that when limited liability is a binding constraint, the principal cannot implement the first-best solution...

This paper proposes a transactions cost theory of total factor productivity. In a world with asymmetric information and transactions costs, effort, and thus productivity, must be induced by incentive schemes. Labor contracts trade off the marginal benefits and the marginal costs of effort. The...

We use a stylized model to show that, if transfers to the poor are founded on a security argument, there is a negative trade-o¤ between law enforcement expenditures and criminality. In contrast, if transfers are based on altruism, the correlation between the same variables may appear positive....

We examine contractual design in a principal-agent model under two forms of limited liability: non-negative constraints on the transfer payments to and the profits of the agent. We show that when limited liability is a binding constraint the principal cannot implement the first-best solution and...

In this article I shall analyze a principal-agent model with moral hazard and adverse selection. I show that for a large class of environments, communication has no value to the principal and that he cannot do better than to average over the different types of agents. This observation is then...

The current study integrates the repeated game approach to implicit contracts and the analysis of explicit bonus rules based on subjective performance evaluation to determine the optimal structure of the compensation scheme for the average white- collar employee. In contrast to previous...

We introduce bargaining power in a moral hazard framework where parties are risk-neutral and the agent is financially constrained. We show that the same contract emerges if the concept of bargaining power is analyzed in either of the following three frameworks: in a standard principal-agent...