We study how best to reward innovators whose work builds on earlier innovations. Incentives to innovate are obtained by offering innovators the opportunity to profit from their innovations. Since innovations compete, awarding rights to one innovator reduces the value of the rights to prior...

We study a continuous-time version of the optimal risk-sharing problem with one-sided commitment. In the optimal contract, the agent's consumption is a time-invariant, strictly increasing function of a single state variable: the maximal level of the agent's income realized to date. We...

In this paper I provide a stopping-time-based solution to a long-term contracting problem between a risk-neutral principal and a risk-averse agent. The agent faces a stochastic income stream and cannot commit to the long-term contracting relationship. To compute the optimal contract, I also...

This paper provides a necessary and sufficient condition for the existence of nonautarkic contract in a risk sharing model with two-sided lack of commitment. Verifying the condition takes just one Guassian elimination of a matrix.

We study infant industry protection using a dynamic model in which the industry's cost is initially higher than that of foreign competitors. The industry can stochastically lower its cost via learning by doing. Whether the industry has transitioned to low cost is private information. We use a...

We study the optimal auditing of a taxpayer's income in a dynamic principal-agent model of hidden income. Taxpayers in our model initially have low income and stochastically transit to high income that is an absorbing state. A low-income taxpayer who transits to high income can under-report his...

This paper studies the stability of a stochastic optimal growth economy introduced by Brock and Mirman [J. Econ. Theory 4 (1972)] by utilizing stochastic monotonicity in a dynamic system. The construction of two boundary distributions leads to a new method of studying systems with non-compact...

In this paper I develop continuous-time methods for solving dynamic principal-agent problems in which the agent’s privately observed productivity shocks are persistent over time. I characterize the optimal contract as the solution to a system of ordinary differential equations, and show that,...