We consider an in nitely repeated reappointment game in a principal- agent relationship. Typical examples are voter-politician or government- public servant relationships. The agent chooses costly effort and enjoys being in office until he is deselected. The principal observes a noisy signal of...

We explore the role of firms in insuring non-verifiable output. As a device that allows workers to commit to thedelivery of their output, the firm arises endogenously as an alternative to the market if workers are sufficiently riskaverse and the firm can base its incentive payments on good...

This paper explores the role of incomplete contracts when firms take into account their locations when deciding on their organizational form. For each of its activities, a firm faces the decision of whether to vertically integrate or to outsource, choosing the less costly of these two...

We formulate and solve the problem of optimal mechanism-design by a principal facing adverse selection and moral hazard from different sources. The parties' decision problem is comprised of a publicly observable collective choice and a partially private social choice. As in agency with pure...

This paper characterizes the optimal contract when a principal has unverifiable subjective information that is correlated with an agent's private information. We find that the principal's subjective information alleviates the initial information asymmetry only if the correlation is sufficiently...

We investigate job design problems in relational contracting environments with multitasking and an aggregated and distorted performance measurement. Compared to assigning all the tasks to a single agent, assigning the tasks to multiple agents mitigates misallocation of effort among the tasks but...

Agency theory studies the problems and solutions linked to delegation of tasks from principals to agents in the context of conflicting interests between the parties. Beginning from clear assumptions about rationality, contracting and informational conditions, the theory addresses problems of ex...

Optimal contracts between a buyer and a seller who trade multiple goods under asymmetric information are considered. The seller makes sequences of unobservable investments, and then realizes the value of the goods. The investment level and value of goods are private information for the seller...

Agency theory studies the impact of and remedies to asymmetrically distributed information in principal-agent relations. Yet, it does so in a surprisingly binary manner: it assumes the principal to be perfectly knowledgeable of some pieces of information (such as the agent's risk aversion),...