The canonical principal-agent problem involves a risk-neutral principal who must use incentives to motivate a risk-averse agent to take a costly, unobservable action that improves the principal's payoff. The standard solution requires an inefficient shifting of risk to the agent. This paper,...

The paper analyzes how the choice of organizational structure leads to the best compromise between controlling behavior based on authority rights and minimizing costs for implementing high efforts. Concentrated delegation and hierarchical delegation turn out to be never an optimal compromise. If...

"Implicit Contracts, incentive compatibility, and involuntary unemployment" (MacLeod and Malcomson, 1989) remains our most highly cited work. We briefly review the development of this paper and of our subsequent related work, and conclude with reflections on the future of relational contract...

This paper analyzes a multi-task agency relationship with a risk-neutral and financially constraint agent. The agent's performance evaluation is incongruent, i.e. it does not reflect his contribution to firm value, and thus motivates an inefficient effort allocation across tasks. This paper...

Comparative static effects of varying the wealth level of risk averse agent in a moral hazard setting with limited liability constraints are investigated. There are two principal opposing effects of increasing wealth: the incentive effect, which allows stronger punishments for poor performance,...

This paper analyzes a multi-task agency model with a risk-neutral and financially constrained agent. The agent's performance evaluation is thereby incongruent, i.e. it does not perfectly reflect the relative contribution of the agent's multi-dimensional effort to firm's profit. This paper...

The analysis of organizational change and particularly of its impacts on incentives is neither simple nor easy. We consider here four contexts (choosing a level of decentralization, choosing the level of responsibility for pollution damage, choosing a level of technological or organisational...

In Europe, many countries have completely separated their railways into totally separate infrastructure managers and railway undertakings (train operators) and the European Commission has sought to make such complete vertical separation a legal requirement.

It is well known that comparative performance information (CPI) can enhance efficiency in static principal-agent relationships by improving the trade-off between insurance and incentives in the design of explicit contracts. In dynamic settings, however, there may be implicit as well as explicit...