We consider a model of moral hazard with limited liability of the agent and effort that is two-dimensional. One dimension of the agent's effort is observable and the other is not. The principal can thusmake the contract conditional not only on outcome but also on observable effort. The...

This paper proposes a simple partial equilibrium model to investigate the effects of government policy on venture capital backed investments. Giving up an alternative career, entrepreneurs focus their effort on a single, high risk venture each. Venture capitalists acquire an equity stake and...

We consider a two-stage principal-agent model with limited liability in which a CEO is employed as agent to gather information about suitable merger targets and to manage the merged corporation in case of an acquisition. Our results show that the CEO systematically recommends targets with low...

The paper offers a new explanation for the widely observed use of redeemable and convertible preferred stock in venture capital finance. Redeemable and convertible preferred stocks can be used to endogenously allocate cash flow and control rights as a function of the state of nature, the...

We study entrepreneurs’ behavioral responses of effort (moral hazard) to avoid business failure.This is done in the context of an unemployment insurance scheme for self-employed, wherewe estimate how much of the transition probability to unemployment can be causally attributedto being insured....

This paper studies a principal-agent relation in which the principal's private information about the agent's effort choice is more accurate than a noisy public performance measure. For some contingencies the optimal contract has to specify ex post inefficiencies in the form of inefficient...

Several empirical findings have challenged the traditional view on the trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empirical puzzle on the positive relationship between risk and incentives can be explained....

We consider a two-stage principal-agent model with limited liability in which a CEO is employed as agent to gather information about suitable merger targets and to manage the merged corporation in case of an acquisition. Our results show that the CEO systematically recommends targets with low...