I examine optimal incentives and performance measurement in a model where an agent has specific knowledge (in the sense of Jensen and Meckling) about the consequences of his actions for the principal. Contracts can be based both on quot;inputquot; measures related to the agent's actions, and an...

We analyze how the availability of internal funds affects a firm's investment in the presence of capital market imperfections. Using a model that endogenizes the cost of external funds and allows for negative levels of internal funds, we show that under otherwise standard assumptions, investment...

We study financial contracting when both an entrepreneur's investment and the resulting revenue are unobservable to an outside investor. The optimal contract must induce the entrepreneur both to choose a particular investment and to repay the investor; what complicates the problem is that once...