The 2016 Nobel Memorial Prize in Economic Sciences was awarded to Oliver Hart and Bengt Holmström for their work on contract theory. Contract theory is a subfield of game theory where the conflict between the owner - the principal - and the CEO - or agent - is at the centre of interest. In the...

We study a principal-agent model with moral hazard and adverse selection. Risk-neutral agents with limited liability have arbitrary private information about the distribution of outputs and the cost of effort. We show that under a multiplicative separability condition, the optimal mechanism...

We provide a theoretical model linking limits to the observability of soil quality to state rulers' ability to tax agricultural output, which leads to a higher political fragmentation. We introduce a spatial measure to quantify state planners' observability in an agricultural society. The model...

To better understand the role of taxation in the emergence of states, this article presents an incomplete contract model of an agricultural society in which information asymmetries cause inefficient taxation, and hence outmigration, uprisings, and rent-seeking, but also urbanization. We propose...

The 2016 Nobel Memorial Prize in Economic Sciences was awarded to Oliver Hart and Bengt Holmström for their work on contract theory. Contract theory is a subfield of game theory where the conflict between the owner - the principal - and the CEO - or agent - is at the centre of interest. In the...

To better understand the role of taxation in the emergence of states, this article presents an incomplete contract model of an agricultural society in which information asymmetries cause inefficient taxation, and hence outmigration, uprisings, and rent-seeking, but also urbanization. We propose...

The first-order approach is a technical shortcut widely used in agency problems. The best known set of sufficient conditions for its validity are due to Mirrlees and Rogerson and require that the distribution function is convex in effort and has a likelihood ratio increasing in output. Only one...

In this paper we study the efficiency losses of monopoly by analyzing a model where a firm's total costs of production decrease with the manager's effort to control costs. We consider two separate cases with regard to ownership and control: (1) the owner of the firm manages the firm himself; and...

There are many situations in which a principal delegates decisions to a better-informed agent but does not choose to give full discretion. This paper discusses one reason why this might be desirable: the agent may have tastes that differ from those of the principal. Limiting the agent's...

This paper analyses problems within the asymmetric information models (principal agent models) where we replace standard assumption of maximisation of expected income by maximisation of probability of economic survival. This paper concentrates on two basic models- adverse selection model and...