We study a dynamic multi-agent model with a verifiable team performance measure and non-verifiable individual measures. The optimal contract can be interpreted as an explicit contract that specifies a minimum bonus pool as a function of the verifiable measure and an implicit contract that gives...

Relational contracts - informal self-enforcing agreements sustained by repeated interactions - are ubiquitous both within and across organizational boundaries. This review highlights recent empirical contributions in selected areas. We begin by reviewing some recent work that explicitly takes...

We set up a model on the hold-up problem with uncertain bargaining power and find that, when agents are overconfident about their bargaining power ex ante, both of them may endogenously choose incomplete contract over complete contract even when complete contracting is feasible. The intuition...

We study a repeated principal-agent model with transferable utility, where the principal's evaluation of the agent's performance is subjective. Our focus is on equilibria which are robust to the addition of small privately observed shocks to the payoffs. Existing constructions of positive-effort...

Motivated by markets for ''expertise,'' we study a bandit model where a principal chooses between a safe and risky arm. A strategic agent controls the risky arm and privately knows whether its type is high or low. Irrespective of type, the agent wants to maximize duration of experimentation with...

We show that concerns for fairness may have dramatic consequences for the optimal provision of incentives in a moral hazard context. Incentive contracts that are optimal when there are only selfish actors become inferior when some agents are concerned about fairness. Conversely, contracts that...

Empirical studies of commercial relationships between firms reveal that (i) suppliers encounter situations in which they can gain in the short run by acting opportunistically---for example, delivering a lower quality than promised after being paid; and (ii) good conduct is sustained not...

A party dissatisfied with the contractual performance of a counterparty is typically able to pursue a variety of legal recourses. Within this apparent variety lurk two fundamental alternatives. The aggrieved party may (i) 'affirm' the contract and seek money damages or specific performance; or...

Contract law and the economics of contract have, for the most part, developed independently of each other. In this essay, we briefly review the notion of a contract from the perspective of lawyer, and then use this framework to organize the economics literature on contract. The title, Contracts...

Incomplete contracts cannot be explained by focusing solely on the direct incentive effects of contract terms. The role of contract terms in facilitating self-enforcement must also be considered. Transactors avoid the costs of increased contractual specification, including the rigidity of...