A repeated moral hazard setting in which the Principal privately observes the Agent's output is studied. It is shown that there is no loss from restricting the analysis to contracts in which the Agent is supposed to exert effort every period, receives a constant efficiency wage and no feedback...

Various approaches used in Agent-based Computational Economics (ACE) to model endogenously determined interactions between agents are discussed. This concerns models in which agents not only (learn how to) play some (market or other) game, but also (learn to) decide with whom to do that (or not).

The relationship between policyholders and an Islamic insurance (takaful) operator is in essence a principal-agent relationship. This paper analyzes the power of incentives offered to takaful operators in mitigating problems associated with such a relationship. These incentives include wakalah,...

Anecdotal, empirical, and experimental evidence suggests that offering extrinsic rewards for certain activities can reduce people's willingness to engage in those activities voluntarily. We propose a simple rationale for this 'crowding out' phenomenon, using standard economic arguments. The...

We explore through both an economics and regulatory lens the frictions associated with credit rating agencies in the aftermath of the financial crisis. While ratings and other public signals are an efficient response to scale economies in information production, these also can discourage...

This article surveys the literature on principal-agent problems with moral hazard that gained popularity following the seminal works of Mirrlees (1976), Holmström (1979), and others. This literature is concerned with designing incentives to motivate one or more workers—typically by paying for...

Revenue sharing between principals and agents is commonly used to balance double-sided moral hazard. We provide a theory of how, when such revenue-sharing is optimal, a principal allocates control rights over decisions that either party could make. We show that the principal either keeps control...

A method for dealing with monotonicity constraints in optimal control problems is used to generalize some results in the context of monopoly theory, also extending the generalization to a large family of principal-agent programs. Our main conclusion is that many results on diverse economic...

We consider a persuasion problem between a sender and a non-expected utility maximizing receiver whose utility may be nonlinear in her belief; we call such receivers risk-conscious. Such utility models arise, for example, when the receiver exhibits sensitivity to the variance of the payoff on...

We show that concerns for fairness may have dramatic consequences for the optimal provision of incentives in a moral hazard context. Incentive contracts that are optimal when there are only selfish actors become inferior when some agents are concerned about fairness. Conversely, contracts that...