In numerous economic scenarios, contracting parties may not have a clear picture of all the relevant aspects. A contracting party may be unaware of what she and/or others are entitled to determine. Therefore, she may reject a contract that is too good to be true. Further, a contracting party may...

In this paper we investigate the implications of providing loan officers with a compensation structure that rewards loan volume and penalizes poor performance versus a fixed wage unrelated to performance. We study detailed transaction information for more than 45,000 loans issued by 240 loan...

We formalize a conception of authority, which is commonly defined as the right of controlling a person's actions embedded in human assets in sociology. Due to the inalienable property of human assets, the contractible formal authority is hard to verify and enforce, while real authority usually...

In this paper, a formal rent-seeking theory of the firm is developed. The main idea is that integration (compared to non-integration) facilitates rent-seeking for the integrating party, but makes it harder for the integrated one. In a one-period model, this implies that the rent-seeking contest...

In this paper, a principal's decision between delegating two tasks or handling one of the two tasks herself is analyzed. We assume that the principal uses both, formal contracts and informal agreements sustained by the value of future relationships (relational contracts) as incentive device. It...