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Dynamic contracts when agent's quality is unknown

Prat, Julien; Jovanovic, Boyan - In: Theoretical economics : TE ; an open access journal in … 9 (2014) 3, pp. 865-914

We solve a long-term contracting problem with symmetric uncertainty about the agent's quality, and a hidden action of the agent. As information about quality accumulates, incentives become easier to provide because the agent has less room to manipulate the principal's beliefs. This result is...

Persistent link: https://www.econbiz.de/10011674079

(Bad) reputation in relational contracting

Deb, Rahul; Mitchell, Matthew F.; Pai, Mallesh M. - In: Theoretical economics : TE ; an open access journal in … 17 (2022) 2, pp. 763-800

Motivated by markets for ''expertise,'' we study a bandit model where a principal chooses between a safe and risky arm. A strategic agent controls the risky arm and privately knows whether its type is high or low. Irrespective of type, the agent wants to maximize duration of experimentation with...

Persistent link: https://www.econbiz.de/10013273779

Contract Litigation as Information Revelation Channel and its Implications on Reputation (Dis)Incentives

Tzang, F.L. Philip - 2011

We examine how the reputation concern of contracting parties affects contractual incentives if information is … revealed to future buyers only if contractual disputes are litigated. We show that the seller's reputation concern acts like an … additional legal cost which induces her to settle privately. A strong reputation concern effectively voids the incentive contract …

Persistent link: https://www.econbiz.de/10013125615

Random inspections and periodic reviews : optimal dynamic monitoring

Varas, Felipe; Marinovic, Iván; Skrzypacz, Andrzej - 2018

reputation for quality, and a principal (e.g. a regulator) can learn the agent's quality via costly inspections. Monitoring plays … two roles: an incentive role, because outcomes of inspections affect agent's reputation, and an informational role because …

Persistent link: https://www.econbiz.de/10011865082

Effects of the menu of loan contracts on borrower behavior

Abraham, Katharine G.; Filiz-Ozbay, Emel; Ozbay, Erkut Y.; … - In: Management science : journal of the Institute for … 68 (2022) 1, pp. 509-528

Persistent link: https://www.econbiz.de/10012821211

A mechanism for Thawing the credit markets

Karni, Edi - 2009

This paper describes a mechanism designed to induce commercial banks to increase their willingness to extend loans in an economic environment characterized by increased uncertainty and diminished expectations. This mechanism is a new tool for the conduct of monetary policy to combat recessions.

Persistent link: https://www.econbiz.de/10010277544

Testing canonical tournament theory: On the impact of risk, social preferences and utility structure

Sheremeta, Roman M.; Wu, Steven Y. - 2012

We use experiments to test comparative statics predictions of canonical tournament theory. Both the roles of principal and agent are populated by human subjects, allowing us to test predictions for both incentive responses and optimal tournament design. Consistent with theory, we observed an...

Persistent link: https://www.econbiz.de/10010282234

Binary payment schemes: Moral hazard and loss aversion

Herweg, Fabian; Müller, Daniel; Weinschenk, Philipp - 2010

We modify the principal-agent model with moral hazard by assuming that the agent is expectation-based loss averse according to Köszegi and Rabin (2006, 2007). The optimal contract is a binary payment scheme even for a rich performance measure, where standard preferences predict a fully...

Persistent link: https://www.econbiz.de/10010286686

Bait contracts

Vierø, Marie-Louise - 2009

The granting of stock options to employees who have negligible impact on company performance intuitively violates Holmstrom's (1979) sufficient statistic result. This paper revisits the sufficient statistic question of when to condition a contract on an outside signal in a principal-agent model...

Persistent link: https://www.econbiz.de/10010290354

Asset Ownership and Contractability of Interaction

Roider, Andreas - 2002

In a property-rights framework, I study how organizational form and quantity contracts interact in generating investment incentives. The model nests standard property-rights and hold-up models as special cases. I admit general message-dependent contracts, but provide conditions under which...

Persistent link: https://www.econbiz.de/10010263049