The theory of incentives and matching theory can complement each other. In particular, matching theory can be a tool for analyzing optimal incentive contracts within a general equilibrium framework. We propose several models that study the endogenous payoffs of principals and agents as a...

We consider a model of polluting firms subject to tax on emissions, monitoring, and penalties in case of underreporting and which face a choice between a more expensive clean and a less expensive dirty technology. Moreover, emissions are subject to random events.We show that the optimal...