We consider a model of moral hazard with limited liability of the agent and effort that is two-dimensional. One dimension of the agent’s effort is observable and the other is not. The principal can thusmake the contract conditional not only on outcome but also on observable effort. The...

Kim (1995) provides a sufficient condition to rank information systems when the first-order approach is valid. The basis for the condition is the comparison of the likelihood ratio distributions. I show, first, that Kim's criterion is not necessary when the limited liability of the agent binds....

This paper studies the incentives that arise in a two-period agency relationship with moral hazard when agents are subject to limited liability. Since the existence of limited liability creates rent the principal can motivate an agent by credibly threatening him to be fired. It is shown that a...

This paper investigates the optimal management of supply disruptions by a manufacturer who uses order inflation and/or investments in process reliability when contracting two risk-averse suppliers. We consider that these investments can be subject to moral hazard. Technically we solve a...

We investigate the optimal regulation of energy production reflecting the long-term goals of the Paris Climate Agreement. We analyze the optimal regulatory incentives to foster the development of non-emissive electricity generation when the demand for power is served either by a monopoly or by...

In a multi-agent setting, individuals often compare own performance with that of their peers. These comparisons influence agents incentives and lead to a noncooperative game, even if the agents have to complete independent tasks. I show that depending on the interplay of the peer effects, agents...

This paper provides a theoretical model for explaining the separation of ownership and control in firms. An entrepreneur hires a worker, whose effort is necessary for running a project. The worker's effort determines the probability that the project will be completed on time, but the worker...

This paper provides a complete characterization of optimal contracts in principal-agent settings where the agent's action has persistent effects. We model general information environments via the stochastic process of the likelihood-ratio. The martingale property of this performance metric...