A general equilibrium model of' optimal employment contracts is developed where firms have better information about labor's marginal product than workers. It is optimal for the wage to be tied to the level of employment, to prevent the firm from falsely stating that the marginal product is low...

Our theory of costly contracts emphasizes that contractual rights can be of two types: specific rights and residual rights. When it is costly to list all specific rights over assets in the contract, it may be optimal to let one party purchase all residual rights. Ownership is the purchase of...

We analyze the optimal risky investment policy for an investor who, at each point in time, wants to lose no more than a fixed percentage of the maximum value his wealth has achieved up to that time. In particular, if "M"_t is the maximum level of wealth W attained on or before time "t", then the...