Consider a seller and a buyer who write a contract. After that, the seller produces a good. She can influence the expected quality of the good by making unobservable investments. Only the seller learns the realized quality. Finally, trade can occur. It is always ex post efficient to trade. Yet,...

Consider two sellers each of whom has one unit of an indivisible good and two buyers each of whom is interested in buying one unit. The sellers simultaneously set reserve prices and use second price auctions as rationing device. An equilibrium in pure strategies where each sellers has a regular...

The Paper studies a straightforward adverse selection problem in which an informative but imperfect signal on the agent’s type becomes public ex post. The agent is protected by limited liability, which rules out unboundedly high penalties. Analysing the consequences of the additional...

Prominent results of the property rights approach based on incomplete contracts as outlined by Hart (1995) say that all ownership structures lead to underinvestment and that joint ownership cannot be optimal, provided that investments are strategic complements and affect human capital only. We...

A central insight of agency theory is that when a principal offers a contract to a privately informed agent, the principal trades off ex post efficiency in the bad state of nature against a larger profit in the good state of nature. We report about an experiment with 508 participants designed to...

We consider a repeated moral hazard problem, where both the principal and the wealth-constrained agent are risk-neutral. In each of two periods, the principal can make an investment and the agent can exert unobservable effort, leading to success or failure. Incentives in the second period act as...

Consider a revenue-maximizing seller who can sell an object to one of n potential buyers. Each buyer either has hard information about his valuation (i.e., evidence that cannot be forged) or is ignorant. The optimal mechanism is characterized. It turns out that more ignorance can increase the...

This paper discusses the optimal organization of sequential agency problems with contractible control actions under limited liability. In each of two stages, a risk-neutral agent can choose an unobservable effort level. A success in the first stage makes effort in the second stage more...

We consider second-price and first-price auctions in the symmetric independent private values framework. We modify the standard model by the assumption that the bidders have reference-based utility, where the reserve price (minimum bid) plays the role of the reference point. In contrast to the...

In the standard property rights approach to the theory of the firm, joint ownership cannot be optimal, because it induces smaller investments in human capital than ownership by a single party. This result holds under the assumption that bargaining is always ex post efficient due to symmetric...