This paper studies the optimal contract for a risk-neutral agency with limited liability. We introduce a novel formulation of the model, in which the contract design problem reduces to a problem of constructing the distribution function of a random variable. This formulation directly balances...

In this paper, we show that whenever the agent's outside option is nonzero, the optimal contract in the continuous-time principal-agent model of Sannikov (2008) is reflective at the lower bound. This means the agent is never terminated or retired after poor performance. Instead, the agent is...

We consider how a principal can optimally outsource information acquisition to an agent in a dynamic environment when the principal can observe neither the agent's effort of collecting information nor signal realizations. Neither initial transaction nor interim payments are allowed to prevent...

We analyze optimal contracts in a hierarchy consisting of a principal, a supervisor and an agent. The supervisor is either neutral or altruistic towards the agent, but his preferences are private information. In a model with two supervisor types, we find that the optimal contract may be very...

In a laboratory experiment with 754 participants, we study the canonical one-shot moral hazard problem, comparing treatments with unobservable effort to benchmark treatments with verifiable effort. In our experiment, the players endogenously negotiate contracts. In line with contract theory, the...

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...

In this paper, a principal's decision between delegating two tasks or handling one of the two tasks herself is analyzed. We assume that the principal uses both, formal contracts and informal agreements sustained by the value of future relationships (relational contracts) as incentive device. It...