The authors examine a firm's decision either to produce an essential input itself or to hire a subcontractor to produce the input. The authors focus on how this decision is affected by technological change in the industry. In general, cost-reducing technological change leads the firm to produce...

We examine how a project owner optimally selects a project operator and motivates him to deliver an essential noncontractible input (e.g.. effort) when potential operators are privately informed about their limited wealth. Truthful revelation of wealth is induced by promising a higher...

The authors examine the incentive of a seller to allow potential buyers to acquire private information about their tastes for the seller's product. Improved private information for buyers enables the seller to segment the market and charge higher prices to high-value buyers. However, improved...

The authors examine the optimal design of a risk-adjusted deposit insurance scheme when the regulator has less information than the bank about the inherent risk of the bank's assets (adverse selection) and when the regulator is unable to monitor the extent to which bank resources are being...

In practice, contracts generally involve "standard terms" or "rules," allowing for variations only under "exceptional" circumstances. The authors develop a simple model in which optimal contracts display this feature, even in the absence of transactions costs and bounded rationality. Rules arise...

The authors examine the design of incentive programs to motivate regulated utilities to supply both basic service (e.g., electricity supply, local telephone service) and service enhancements (e.g., energy-conservation services, improved clarity and speed of voice communication). The optimal...

We examine the optimal design of contracts when an agent is privately informed about his wealth, his ability, and his effort supply. We find that the agent's wealth and ability act as perfect complements in determining the power of the incentive scheme under which he operates. Only if his...