We use a static framework characterized by both moral hazard and holdup problems. In the model the optimal allocation of bargaining power balances these frictions. We examine the impact of improved monitoring on that optimal allocation and its impact upon effort, investment, profits and rents....

We model the design of labor market institutions in an economy characterized by moral hazard and irreversible investment. In this setting the institutional design affects the bargaining power of labor. At the optimum, the allocation of bargaining power balances the aforementioned frictions. We...