Why are bonus/promotion schemes so widely used in reality? Are they effective in alleviating incentive problems? For the standard agency model, this paper proposes an alternative solution to the classical solution in Holmström (1979). The advantages of our solution are that (1) it is a simple...

One major difficulty with the standard agency model is that it generally does not provide a closed-form solution. A second major difficulty is that the theory relies on the troublesome first-order approach. To avoid these difficulties but at the same time to allow a general utility function,...

Cooperation among firms is governed by contracts. An interesting phenomenon is that some contracts are comprehensive while some are limited. This study tries to explain different levels of incompleteness of contracts that firms choose to govern their cooperation with. We find that a limited...