Search

Contract farming is among the institutional arrangements essential for agricultural products. In most cases, these contracts lead to increased incomes and welfare of farmers. However, this type of business has not been taken seriously in Iran. This study aimed to analyze the effect of contract farming on the income and risk of the farmer’s income. To this end, pistachio and saffron farmers in the Yazd Province, in central Iran, were considered in the harvest year of 2017-2018. We divided the farmers into three homogeneous groups, each with different input consumption levels and production per hectare. We calibrated the cost functions of representative farmers in each group. These functions were employed to develop an ideal formal contract model and relational contract model. According to the results, formal contracts and relational contracts increased income and relational contracts reduced the risk to farmers when they were compatible with the incentive constraints of the farmer. Policymakers should provide favorable conditions for the development of contract farming. For instance, they can present contract farming to farmers and encourage agricultural enterprises to participate in contracts by facilitating access to credit and other investment incentives.

The theory of optimal contracts refers to the market state, in which the bidders, the participants in the execution of transactions, have a certain number of certain information higher or lower. Normally, anyone who concludes a contract, regardless of its nature and we refer to the business environment, seeks to place himself on an optimal solution, i.e. one that according to the Latin principle “aurea mediocritas” gives him a chance to average, but protects him the realization of a contract subject to many risks. Normally, the conclusion of any contract is based on an interest, which starting from the principle of the free market, based on the ratio between supply and demand, may end up in the situation of concluding one or another of the contracts. In the literature the problem of optimal contracts is not so new, only that there is less information and materials published by specialists on this topic. In principle, in the capital market, those operating in the capital market must consider the possibility of concluding a contract on optimal terms. Nowadays, when we are in the Big Data era, in which databases are enormous, it is essential that companies or agencies that mediate business know very clearly the information that underlies the transaction to be concluded. As always, there is a clear enough difference between the level of information held by one or another of the customers. In this article we started the theoretical problem in very synthetic terms, because it is known and we tried to substantiate a model that could be the basis for renting optimal contracts. It should be noted that it started from the utility function, in the sense of von Neumann-Morgenstern, as well as the Lagrange function and last but not least from the Kuhn-Tucker multiplier, often used in microeconomic analyzes based on consistent models. In this article we started from the estimation of the multiplier between two equations to obtain an optimal result. The optimal contract for an agent, best placed, is a solution given by a system of two equations that lead to Pareto optimality, or if you will to Pareto efficiency. On the other hand, the optimal contract in the situation of asymmetric information for the interested agent is the optimal Pareto or Pareto-optimal. In this situation, in this article we took a numerical case, from whose analysis it is clear how the study should be based in the perspective of substantiating the decisions to conclude an optimal contract. Finally, the mathematical model is concretely formulated, imposing some participation restrictions or compatibility restrictions that must always be taken into account by the one who enters the market and wants to conclude an optimal contract. It follows that the model can be simplified, in order to remove some restrictions or to establish that some of them can be satisfied by using the Kuhn-Tucker multiplier. Thus, if a second agent or another market participant signs the contract, he assumes some risks. There are a lot of solutions in the market study, however, and then it must be borne in mind that these contracts are satisfactory if we take into account the conditions of the mathematical model we talked about. In this article we started from the theoretical elements, analyzing them in the mathematicaleconomic sense, in order to reach the relationship that the conditions for concluding an optimal contract imply.

A monopolist platform (the principal) shares profits with a population of affiliates (the agents), heterogeneous in skill, by offering them a common nonlinear contract contingent on individual revenue. The principal cannot discriminate across individual skill but knows its distribution and aims at maximizing profits. This paper identifies the optimal contract, its implied profits, and agents' effort as the unique solution to an equation depending on skill distribution and agents' costs of effort. If skill is Pareto-distributed and agents' costs include linear and power components, then closed-form solutions highlight two regimes: If linear costs are low, the principal's share of revenues is insensitive to skill distribution and decreases as agents' costs increase. If linear costs are high, then the principal's share is insensitive to the agents' costs and increases as inequality in skill increases.

In order to ensure profitability for shareholders, optimal contracting recommends the alignment between executive compensation and company performance. Large organizations have therefore adopted executives remuneration systems in order to induce positive market reaction and motivate executives. Complex compensation schemes are designed by Boards of Directors using strong pay-performance incentives that explain high levels of executive pay along with company size, demand for management skills and executive influence. However, the literature remains inconclusive on the pay-performance relationship owing to the various empirical methods used by researchers. Additionally, there has been little effort in the literature to compare methodologies on the pay-performance relationship. Using the dominant agency theory framework, the purpose of this study is to establish and examine the relationship between firm performance and executive pay. In addition, it intends to assess the characteristic of model specifications commonly adopted. To this aim, a quantitative analysis consisting of three complementary methods was performed on panel data from South African listed companies. The results of the main unrestricted first difference model indicate a strong non-linear relationship where the impact of current and previous firm performance on executive pay can be observed over 2 to 4-year period providing support to the optimal contracting theoretical perspective in the South African business context. In addition, CEO pay is more sensitive to firm performance as compared to Director pay. Lastly, although it affects executive pay levels, company size is not found to improve the pay-performance relationship.

The architecture, engineering and construction industry faces challenges when dealing withprocurement contract design and risk-handling. The optimal contracting practices have beenworldwide studied in areas of contract theory which studies how the optimal incentivemechanism (“contracts”) can be designed to encourage the parties to behave more efficiently.The parties usually consist of a principal and an agent, where the principal hires an agent todeliver goods or services. However, the complexity of contract theory calls for a morepracticable approach in an attempt to understand the procurement problem in the industry andincrease knowledge-sharing between projects. The purpose of this study is to propose a model based on contract theory that can be used inpractice to investigate the effects of project endogenous risks in three different types ofprocurement contracts: fixed-price, time and material, and incentive. Thus, this study usesquantitative methods with the aim to explain the current procurement problem in the Swedisharchitecture, engineering, and construction industry, compare theory and practice, andcontribute to knowledge about the linkage between endogenous risks, optimal risk sharing andcontract design. The conclusions from this study are that the current contracting practices in the industry arenot aligned with the optimal contract design described by the theory. The theory in this researchshowed that, given endogenous project risks, the optimal incentives vary in the agent’saversion to risk resulting in a non-monotone relationship between optimal contract power andproject risk. Further, a contract becomes optimal and efficient when cost savings and qualityincentives are aligned. However, the analysis of real-world projects presented no clearrelationship between contract power and project risk, i.e. some projects with fixed-pricecontracts or time and material contracts presented the same risk level. Hence, this researchproposes a method for computing the optimal incentive contract which can be used in manycases where the other two types of contract are currently being used. Based on the theory, theoptimal incentive contract may add valuable benefits for both parties involved since it aims toefficiently share the project risk between them while providing the agent the right incentivesto work more efficiently to reduce costs and deliver high-quality services or goods. Byggbranschen står inför utmaningar när det gäller kontraktsdesign och riskhantering. Deoptimala upphandlingsmetoderna har studerats över hela världen inom områden avkontraktsteori som i sin tur studerar hur den optimala incitamentsmekanismen ("kontrakt") kanutformas för att uppmuntra parterna att agera mer effektivt. Parterna består vanligtvis av enprincipal och en agent, där principalen anställer en agent för att leverera varor eller tjänster.Men komplexiteten i kontraktsteori kräver ett mer praktiskt tillvägagångssätt i ett försök attbättre förstå upphandlingsproblemet i byggbranschen samt att öka kunskapsutbytet mellanprojekt. Syftet med denna studie är att föreslå en modell baserad på kontraktsteori som kan användas ipraktiken för att undersöka effekter av endogena risker i tre olika typer avupphandlingskontrakt: fastpris, rörligt pris (time and material) och incitament. Denna studieanvänder därmed kvantitativa metoder i syfte att förklara det aktuella upphandlingsproblemeti den svenska byggbranschen, jämföra teori och praktik, och bidra till utökad kunskap omsambandet mellan endogena risker, optimal riskdelning och kontraktsdesign. Slutsatsen från denna studie är att den nuvarande upphandlingspraxisen i branschen inte är ilinje med den optimala kontraktsdesignen som beskrivs av teorin. Teorin i denna studie visaratt, förutsatt endogena projektrisker, så varierar de optimala incitamenten med agentensriskaversion vilket resulterar i ett icke-monoton förhållande mellan optimal kontraktsdesignoch projektrisk. Dessutom blir ett kontrakt optimalt och effektivt när kostnadsbesparingar ochkvalitetsincitament är i linje med varandra. Men analysen av verkliga projekt visar inget tydligtsamband mellan kontraktsdesign och projektrisk, det vill säga en del projekt med fastpris ellerrörligt pris visade sig ha samma risknivå. Därför föreslår denna studie en metod för beräkningav det optimala incitamentet som kan användas i många fall där de andra två typerna avkontrakt för närvarande används. Teorin säger att det optimala incitamentet kan ge värdefullafördelar för de inblandade parterna eftersom det syftar till att på ett effektivt sätt fördelaprojektrisken mellan dem samtidigt som agenten får rätt incitament att arbeta mer effektivt föratt sänka kostnaderna och leverera högkvalitativa tjänster eller varor.

In the first two chapters, we study the optimal contract problem in presence of risk and ambiguity as an optimal control problem. Ambiguity is modeled according to Klibanoff et al. (2005). Our approach generalizes all the analyses caried out so far by considering the insurance contract as a pair of an indemnity function and a premium to be solved for simultaneously. We prove the existence of an optimal contract in the most general case, allowing for the principal or the insurance to be averse or neutral to risk or ambiguity. We characterize both the risk and ambiguity sharing rule between the contracting parties. In the case of one-sided ambiguity aversion, we show that an optimal insurance contract cannot contain a straight deductible policy. Furthermore, under the hypothesis that the conditional densities can be ranked according to the monotone likelihood ratio, we prove that a disappearing deductible contract is optimal, a result that is consistent with Gollier (2014). In particular, our method completes the analysis of Raviv (1979), showing that in the pure risk case with a risk-neutral insurer, a policy with an upper limit coverage cannot be optimal. This result also holds under ambiguity neutrality.In the third chapter, I examine the impact of risk and ambiguity on the optimal investment in human and physical capital in a two-period Ben-Porath (1967)'s model. Uncertainty (both in the form of risk and ambiguity) is introduced to the accumulation of human capital via two channels. When uncertainty is on the depreciation rate of human capital (uncertain obsolescence of skills), I have found that the optimal investment in human capital always increases, whether or not physical capital is present. This response to uncertainty of an optimizing household represents the typical self-insurance behavior. By contrast, when uncertainty is on the effectiveness of human capital accumulation, the optimal investment in human capital diminishes among the households with a degree of constant risk aversion less than one. This response to uncertainty is typical of a household who views human capital as an investment with risky/ambiguous return.The final chapter (relatively independent from the preceding chapters) examines an important subject in the theory of economic growth: the role of renewable resources and externalities in the economy. The introduction of a (natural resource) regenerating function that is non-concave with respect to one of its arguments renders the problem non-convex. In consequence, we can no longer apply traditional dynamic programming techniques to this model. We thus propose a new method to study two-sector economies with externalities. In particular, we introduce the notion of "the net gain of stock", which is a notion similar to "the net gain of investment" of Kamihigashi et al. (2007). In absence of the usual convex and supermodular requirements, we prove that the economy evolves to increase the net gain of stock, and establish conditions that ensure long-run convergence. This approach can be adapted to similar problems previously studied, or be extended to the analysis of multi-sector economies in general.; Dans le deux premiers chapitres, nous étudions le problème du contrat optimal en présence de risque et de l'ambiguïté dans le cadre d'un problème du contrôle optimal. L'ambiguïté est modélisés selon Klibanoff et al. (2005). Notre approche généralise les analyses effectuées jusqu'à présent en considérant le contrat d'assurance comme la paire d'une prime et une fonction d'indemnisation à résoudre simultanément. Nous prouvons l'existence d'un contrat optimal dans le cas le plus général où tous les agents peuvent être simultanément averses à l'ambiguïté et au risque, ce qui englobe tous les cas précédemment examinés. Nous caractérisons non seulement le partage du risque mais aussi la règle du partage de l'ambiguïté entre les parties contractantes. Dans le cas de l'aversion vers l'ambiguïté unilatérale, nous montrons qu'une politique de franchise directe ne peut pas constituer un contrat d'assurance optimal. Au contraire, sous l'hypothèse que les densités conditionnelles puissent être classées selon le rapport de vraisemblance monotone, un contrat avec des franchises qui disparaissent est optimal, un résultat qui est cohérent avec Gollier (2014). En particulier, la méthodologie mise en œuvre complète l'analyse de Raviv (1979) pour le cas du risque pur avec un assureur neutre au risque, montrant qu'une couverture de limite supérieure ne peut pas constituer un optimum. Ce résultat est robuste à la neutralité de l'ambiguïté.Dans le troisième chapitre, j'ai examiné l'impact du risque et de l'ambiguïté sur l'investissement optimal dans le capital humain et le capital physique en utilisant le modèle de Ben-Porath (1967) à deux périodes. L'incertitude (à la fois dans le sens du risque et de l'ambiguïté) est introduite à l'accumulation de capital humain de deux façons. Lorsque l'incertitude porte sur le taux de dépréciation du capital humain (obsolescence incertaine des compétences), j'ai constaté que l'investissement optimal dans le capital humain augmente toujours, que soit présent ou non le capital physique. Cette réponse à l'incertitude d'un ménage représente le comportement typique de l'auto-assurance. En revanche, lorsque l'incertitude se porte sur l'efficacité de l'accumulation du capital humain, l'investissement optimal dans le capital humain diminue parmi les ménages avec l'aversion au risque relative constante inférieure à un. Cette réponse à l'incertitude est typique d'un ménage qui considère l'investissement comme un actif à rendement risqué au lieu d'une assurance.Le dernier chapitre (relativement indépendant des chapitres précédents) examine une question importante dans la théorie de la croissance: le rôle des ressources renouvelables et des externalités dans l'économie. L'introduction d'une fonction régénératrice (d'une ressource naturelle) non-concave par rapport à l'un des arguments rend le problème non convexe. En conséquence, nous ne pouvons plus utiliser les techniques traditionnelles de programmation dynamique. En attaquant ce probpème, nous proposons une nouvelle méthode pour étudier une économie à deux secteurs en présence des externalités. En l'occurrence, nous introduisons le concept de "gain net de stock", qui est une notion similaire au "gain net d'investissement" introduit par Kamihigashi et al. (2007). En absence des propriétés convexes ou supermodulaires habituelles, nous prouvons que l'économie évolue pour augmenter le gain net de stock et établissons les conditions assurant la convergence de l'économie à long terme. Cette approche peut être appliquée aux problèmes similaires précédemment posées, ou être étendu à l'analyse des économies multisectorielles en général.

In the first two chapters, we study the optimal contract problem in presence of risk and ambiguity as an optimal control problem. Ambiguity is modeled according to Klibanoff et al. (2005). Our approach generalizes all the analyses caried out so far by considering the insurance contract as a pair of an indemnity function and a premium to be solved for simultaneously. We prove the existence of an optimal contract in the most general case, allowing for the principal or the insurance to be averse or neutral to risk or ambiguity. We characterize both the risk and ambiguity sharing rule between the contracting parties. In the case of one-sided ambiguity aversion, we show that an optimal insurance contract cannot contain a straight deductible policy. Furthermore, under the hypothesis that the conditional densities can be ranked according to the monotone likelihood ratio, we prove that a disappearing deductible contract is optimal, a result that is consistent with Gollier (2014). In particular, our method completes the analysis of Raviv (1979), showing that in the pure risk case with a risk-neutral insurer, a policy with an upper limit coverage cannot be optimal. This result also holds under ambiguity neutrality.In the third chapter, I examine the impact of risk and ambiguity on the optimal investment in human and physical capital in a two-period Ben-Porath (1967)'s model. Uncertainty (both in the form of risk and ambiguity) is introduced to the accumulation of human capital via two channels. When uncertainty is on the depreciation rate of human capital (uncertain obsolescence of skills), I have found that the optimal investment in human capital always increases, whether or not physical capital is present. This response to uncertainty of an optimizing household represents the typical self-insurance behavior. By contrast, when uncertainty is on the effectiveness of human capital accumulation, the optimal investment in human capital diminishes among the households with a degree of constant risk aversion less than one. This response to uncertainty is typical of a household who views human capital as an investment with risky/ambiguous return.The final chapter (relatively independent from the preceding chapters) examines an important subject in the theory of economic growth: the role of renewable resources and externalities in the economy. The introduction of a (natural resource) regenerating function that is non-concave with respect to one of its arguments renders the problem non-convex. In consequence, we can no longer apply traditional dynamic programming techniques to this model. We thus propose a new method to study two-sector economies with externalities. In particular, we introduce the notion of "the net gain of stock", which is a notion similar to "the net gain of investment" of Kamihigashi et al. (2007). In absence of the usual convex and supermodular requirements, we prove that the economy evolves to increase the net gain of stock, and establish conditions that ensure long-run convergence. This approach can be adapted to similar problems previously studied, or be extended to the analysis of multi-sector economies in general.; Dans le deux premiers chapitres, nous étudions le problème du contrat optimal en présence de risque et de l'ambiguïté dans le cadre d'un problème du contrôle optimal. L'ambiguïté est modélisés selon Klibanoff et al. (2005). Notre approche généralise les analyses effectuées jusqu'à présent en considérant le contrat d'assurance comme la paire d'une prime et une fonction d'indemnisation à résoudre simultanément. Nous prouvons l'existence d'un contrat optimal dans le cas le plus général où tous les agents peuvent être simultanément averses à l'ambiguïté et au risque, ce qui englobe tous les cas précédemment examinés. Nous caractérisons non seulement le partage du risque mais aussi la règle du partage de l'ambiguïté entre les parties contractantes. Dans le cas de l'aversion vers l'ambiguïté unilatérale, nous montrons qu'une politique de franchise directe ne peut pas constituer un contrat d'assurance optimal. Au contraire, sous l'hypothèse que les densités conditionnelles puissent être classées selon le rapport de vraisemblance monotone, un contrat avec des franchises qui disparaissent est optimal, un résultat qui est cohérent avec Gollier (2014). En particulier, la méthodologie mise en œuvre complète l'analyse de Raviv (1979) pour le cas du risque pur avec un assureur neutre au risque, montrant qu'une couverture de limite supérieure ne peut pas constituer un optimum. Ce résultat est robuste à la neutralité de l'ambiguïté.Dans le troisième chapitre, j'ai examiné l'impact du risque et de l'ambiguïté sur l'investissement optimal dans le capital humain et le capital physique en utilisant le modèle de Ben-Porath (1967) à deux périodes. L'incertitude (à la fois dans le sens du risque et de l'ambiguïté) est introduite à l'accumulation de capital humain de deux façons. Lorsque l'incertitude porte sur le taux de dépréciation du capital humain (obsolescence incertaine des compétences), j'ai constaté que l'investissement optimal dans le capital humain augmente toujours, que soit présent ou non le capital physique. Cette réponse à l'incertitude d'un ménage représente le comportement typique de l'auto-assurance. En revanche, lorsque l'incertitude se porte sur l'efficacité de l'accumulation du capital humain, l'investissement optimal dans le capital humain diminue parmi les ménages avec l'aversion au risque relative constante inférieure à un. Cette réponse à l'incertitude est typique d'un ménage qui considère l'investissement comme un actif à rendement risqué au lieu d'une assurance.Le dernier chapitre (relativement indépendant des chapitres précédents) examine une question importante dans la théorie de la croissance: le rôle des ressources renouvelables et des externalités dans l'économie. L'introduction d'une fonction régénératrice (d'une ressource naturelle) non-concave par rapport à l'un des arguments rend le problème non convexe. En conséquence, nous ne pouvons plus utiliser les techniques traditionnelles de programmation dynamique. En attaquant ce probpème, nous proposons une nouvelle méthode pour étudier une économie à deux secteurs en présence des externalités. En l'occurrence, nous introduisons le concept de "gain net de stock", qui est une notion similaire au "gain net d'investissement" introduit par Kamihigashi et al. (2007). En absence des propriétés convexes ou supermodulaires habituelles, nous prouvons que l'économie évolue pour augmenter le gain net de stock et établissons les conditions assurant la convergence de l'économie à long terme. Cette approche peut être appliquée aux problèmes similaires précédemment posées, ou être étendu à l'analyse des économies multisectorielles en général.

In this article, the authors propose to conduct a pertinent analysis of the use of mathematical models in relation to optimal effort taxation. The effort taxation must be a balance between allocative efficiency and distribution. It is a question of determining the optimal tax level for three conditions. The theory is that the shift to a fixed amount, a single share, is not feasible for wage compensation, being important to note that this condition is one that must be considered. The mathematical model proposed by the authors regarding optimal taxation of multi-condition effort is relevant and suggestive for the analysis. It is well known that, in order to increase tax revenue, they must inevitably be based on the unobservable variant, which is the potential gain or, most importantly, on the individual productivity of labor. Solving a problem of this sensibility, such as the optimal taxation of multi-state effort, needs to be analyzed and conditioned by the establishment of a mathematical-econometric model that highlights both the aspects of a minimum expectation threshold or a situation that depends on the economic outcome. The authors consider the existing variants and establish variants based on a mathematical model that is analyzed to best answer the problem of the adverse selection ie the balance between allocation efficiency and distribution. We analyze the optimization problem from Lagrange’s function and associated multiplier, highlighting the mathematical functions that can be used. Further, the authors consider the case of adverse selection based on asymmetric information. For the objective function and budget constraint, the authors consider that they need to add incentive restrictions, especially when they are taxed on income. By analyzing this hypothesis in depth, the authors propose and demonstrate a mathematical function that best suits these adjustment needs and solve the adverse selection. The way in which the authors suggest and demonstrate the implementation condition that is equivalent to the assertion that the plurality of admissible solutions is unclear gives a solution perspective applicable in most cases. The authors propose, by synthesizing, conditions (sentences) that demonstrate that the model used is one that must be considered and can be successfully used in optimal taxation of the multi-state effort. In the explanatory approach, it is also appreciated that the combination of the Kuhn-Tucker multipliers of the two constructions can determine the Lagrange function. This feature built by all Kuhn-Tucker multipliers is strictly positive and the level of effort is optimal given by a series of equalities that imply a final aspect of its use.

In this note, we consider an adverse selection problem involving an insurance market à la Rothschild-Stiglitz. We assume that part of the loss is uninsurable as in the case with health care or environmental risk. We characterize sufficient conditions such that adverse selection by itself does not distort competitive insurance contracts. A sufficiently large uninsurable loss provides an incentive to high-risk policy holders not to mimic low-risk policy holders without distorting the optimal coverage.

В настоящее время вопрос о форме оплаты труда работников сферы услуг на рынке недвижимости продолжает оставаться дискуссионным. Статья посвящена актуальной на сегодня проблеме организации и оплаты труда риэлторов. На основании обобщения практического опыта ведущих агентств по недвижимости проанализированы концепции комиссионно-сдельной и комиссионно-премиальной системы оплаты труда, их достоинства и недостатки, а также рассмотрены вопросы мотивации сотрудников., The problem of paying wages to service sector personnel in real estate market causes disputes. The research is devoted to the problem of estate agents’ wages. By summarizing the experience of leading real estate agencies, we analyze the concepts of paying combined commission and wages and commission and bonus, consider the advantages and disadvantages of both systems and look at the problems of personnel motivation., №2(23) (2019)

This paper describes how plaintiff should compensate lawyers, who choose unobservable effort, when litigation may proceed from the trial to the appeals court. We find that, when it is very likely that the defendant will appeal, transfers made to the lawyer only after an appeals court’s ruling are key instruments in incentivizingbothtrial and appeal court effort. Indeed, the lawyer may not receive any transfer after the trial court’s ruling. In contrast, when reaching the appeals stage is unlikely, a favorable trial court ruling triggers a positive transfer to the lawyer and first-best appeals effort. In our setup, the lawyer may receive a lower transfer after winning in both the trial and the appeals court as compared to the scenario in which the first-instance court ruled against the plaintiff and the appeals court reversed that ruling.

Cataloged from PDF version of article. Thesis (M.S.): Bilkent University, Department of Economics, İhsan Doğramacı Bilkent University, 2018. Includes bibliographical references (leave 43). We study a principal-agent problem where we model the uncertainty regarding the relationship between the level of effort and the monetary outcome using the smooth ambiguity model (Klibanoff et al., 2005). We provide comparative statics on the optimal wage scheme when the agent has constant absolute ambiguity aversion (CAAA) preferences. Our main result implies that whether the optimal wage scheme should be higher-powered or lower-powered depends on an intuitive measure of ambiguity. by Fatih Öztürk. M.A.

International audience; We characterize the optimal contract for resource extraction in a context where the concessionaire has private information on the initial stock of resource. The dynamics of extraction is characterized by a virtual Hotelling rule in which costs of extraction are replaced with virtual costs of extraction. We analyze how structural breaks in the price of resource impact the dynamics of extraction.

В статье рассматривается модель внутрифирменного турнира как механизма вознаграждения. Приводятся основные допущения модели, исследуется влияние асимметричной информации на форму контракта. Проводится сравнение внутрифирменного турнира с линейным контрактом как наиболее распространенной на практике формой вознаграждения, делается вывод о его сравнительной эффективности. В качестве метода исследований выступают методы экономико-математического моделирования и сравнительного анализа. В заключении делаются выводы о возможностях практического применения турнирных форм стимулирования., The article deals with the model of an inhouse tournament as a remuneration mechanism. The main assumptions of the model are given; the influence of asymmetric information on the form of the contract is studied. A comparison of an in-house tournament with a linear contract as the most common form of remuneration is made. A conclusion on its comparative effectiveness is drawn. Methods of economic-mathematical modeling and comparative analysis are used as research methods. Conclusions are made about the possibilities of practical application of the tournament incentive forms., №10(64) (2017)

Motivated by the collection outsourcing phenomena under Extended Producer Responsibility (EPR), this paper studies a contract design problem for a manufacturer who consigns the used product collection to a collector, while the manufacturer only has incomplete information on the collector's cost. On the basis of the incentive theory, optimal contracts are developed to minimize the cost and satisfy the collection constraints prescribed by EPR. Properties of the contract parameters are derived, and issues such as information rent and information value are also explored. The impacts of EPR are analysed by comparing whether or not EPR law is implemented, and more managerial insights are further obtained through numerical examples.

Groundwater is a vital yet threatened resource in much of South Asia. This paper develops a model of groundwater transactions under payoff uncertainty arising from unpredictable fluctuations in groundwater availability during the agricultural dry season. The model highlights the trade-off between the ex post inefficiency of long-term contracts and the ex ante inefficiency of spot contracts. The structural parameters are estimated using detailed micro-data on the area irrigated under each contract type combined with subjective probability distributions of borewell discharge elicited from a large sample of well-owners in southern India. The findings show that, while the contracting distortion leads to an average welfare loss of less than 2 percent and accounts for less than 50 percent of all transactions costs in groundwater markets, it has a sizeable impact on irrigated area, especially for small farmers. Uncertainty coupled with land fragmentation also attenuates the benefits of the water-saving technologies now being heavily promoted in India.

We model the optimal regulation of continuous, irreversible, capacity expansion, in a model in which the regulated network firm has private information about its capacity costs, investments need to be financed out of the firm's cash flows from selling network access and demand is stochastic. If asymmetric information is large, the optimal mechanism consists of a regulatory holiday for low-cost firms, and a mark-up regime for higher-cost firms. With the regulatory holiday, a firm receives the full revenue of capacity sales, and expands capacity as if it were an unregulated monopolist. Under the mark-up regime, a firm receives only a fraction of the capacity revenues, and is obliged to expand capacity whenever the price for capacity reaches a threshold. The regulatory holiday is necessary to fund information rents to the most efficient firms, which invest relatively early, as direct investment subsidies are not feasible.

We model the optimal regulation of continuous, irreversible, capacity expansion, in a model in which the regulated network firm has private information about its capacity costs, investments need to be financed out of the firm's cash flows from selling network access and demand is stochastic. If asymmetric information is large, the optimal mechanism consists of a regulatory holiday for low-cost firms, and a mark-up regime for higher-cost firms. With the regulatory holiday, a firm receives the full revenue of capacity sales, and expands capacity as if it were an unregulated monopolist. Under the mark-up regime, a firm receives only a fraction of the capacity revenues, and is obliged to expand capacity whenever the price for capacity reaches a threshold. The regulatory holiday is necessary to fund information rents to the most efficient firms, which invest relatively early, as direct investment subsidies are not feasible.

We model the optimal regulation of continuous, irreversible, capacity expansion, in a model in which the regulated network firm has private information about its capacity costs, investments need to be financed out of the firm's cash flows from selling network access and demand is stochastic. If asymmetric information is large, the optimal mechanism consists of a regulatory holiday for low-cost firms, and a mark-up regime for higher-cost firms. With the regulatory holiday, a firm receives the full revenue of capacity sales, and expands capacity as if it were an unregulated monopolist. Under the mark-up regime, a firm receives only a fraction of the capacity revenues, and is obliged to expand capacity whenever the price for capacity reaches a threshold. The regulatory holiday is necessary to fund information rents to the most efficient firms, which invest relatively early, as direct investment subsidies are not feasible.

Microfinance, the provision of small individual and business loans, has experienced dramatic growth, reaching over 150 million borrowers worldwide. Much of the success of microfinance has been attributed to attempts to overcome the challenges of information asymmetries in uncollateralized lending. However, very little is known about the optimal contract structure of these loans, and there is substantial variation across lenders, even within a particular setting. This paper exploits a plausibly exogenous change in the liability structure offered by a microfinance program in India, which shifted from individual to group liability lending. We find evidence that the lending model matters: for the same borrower, the required monthly loan installments are 11 percent less likely to be missed under the group liability setting in comparison with individual liability. In addition, compulsory savings deposits are 20 percent less likely to be missed under group liability contracts. Copyright 2013, Oxford University Press.

In the paper we analyze the features of the optimal licensing contracts in the situation of asymmetric information between the license’s owner and the potential buyer. The approach is based on a classical model of adverse selection first proposed by Macho-Stadler and Perez-Castrillo (1991) and solved in an alternative way, using the informational rents as variables, by Marinescu and Marin (2011). Their model is extended in the present paper by assuming that the adverse selection parameter can have one of three possible values (corresponding to three possible types of innovations).

In the paper we analyse a model for determining the optimal licensing contract in both situations of symmetric and asymmetric information between the license’s owner and the potential buyer. Next we present another way of solving the corresponding adverse selection model, using the informational rents as variables. This approach is different from that of Macho-Stadler and Perez-Castrillo.

In the paper we analyze an adverse selection model with three states of nature, where both the Principal and the Agent are risk neutral. When solving the model, we use the informational rents and the efforts as variables. We derive the optimal contract in the situation of asymmetric information. The paper ends with the characteristics of the optimal contract and the main conclusions of the model.

International audience; Despite the growing public concern in recent years about the place of women in business, gender diversity in corporate governance has made little progress. As a consequence, the issue has captured the attention of policymakers throughout the world.Several countries are currently adopting or considering the adoption of laws or regulations to promote gender diversity on corporate boards. The purpose of this paper is to compare the effectiveness of using legislative or regulatory means to increase female representation instead of allowing firms to voluntarily fix their own non legally binding targets. We find that the relation between gender diversity and performance is positive in countries using the voluntary approach while it is negative in countries using the regulatory approach. We conclude that public policy aimed at increasing the number of women on corporate boards should be introduced gradually and voluntarily rather than quickly and coercively to avoid sub-optimal board composition.

Recent corporate scandals around the world have led many to single out executive stock options as one of the main culprits. More corporations are abandoning stock options and reverting to restricted stock. This paper argues that such a change is not entirely justifiable. We first provide a critical review of the pros and cons of executive stock options. We then compare option-based contracts with stock-based contracts using a simple principal-agent model with moral hazard. In a general environment without restrictions on preferences or technologies, option-based contracts are shown to weakly dominate stock-based contracts. The weak dominance relation becomes strict if the manager is risk neutral. Numerical examples are provided to show that, even if the manager is risk averse, strict dominance is more likely the case.

Over the past dozen years, policymakers have largely abandoned long-standing popular approaches for addressing risk in agriculture without fully resolving the question of how best to manage the negative consequences of volatile agricultural markets. The article reviews the transition from past policies and describes current approaches that distinguish between the trade-related fiscal consequences of commodity market volatility and the consequences of price and production risks for vulnerable rural households and communities. Current policies rely more heavily on markets, even though markets for risk are incomplete in numerous ways. The benefits and limitations of market-based instruments are examined in the context of risk management strategies, and innovative approaches to extend the reach of risk markets are discussed.

Empirical work in labor economics has focused on rent sharing as an explanation for the observed correlation between wages and profitability. The alternative explanation of risk sharing between workers and employers has not been tested. Using a unique panel data set for four African countries, Authors find strong evidence of risk sharing. Workers in effect offer insurance to employers: when firms are hit by temporary shocks, the effect on profits is cushioned by risk sharing with workers. Rent sharing is a symptom of an inefficient labor market. Risk sharing; by contrast, can be seen as an efficient response to missing markets. Authors evidence suggests that risk sharing accounts for a substantial part of the observed effect of shocks on wages.

Conditionality, and the extent to which it should be associated with development aid, has been a major concern within the donor community over the past decades. Practitioners argue in favour of associating budget support (BS) with some level of conditionality. A scientific analysis by Cordella and Dell’Ariccia confirms this view. The aim of this article is to qualify the circumstances under which conditionality is an effective complement to BS. To do this, we develop a theoretical model based on Cordella and Dell’Ariccia. We show that the optimal use of conditionality depends on the recipient’s developmental preferences, the productivity of the inputs and the level of aid compared with the recipient’s budget: when these parameters are relatively high, conditionality should be enforced. Otherwise, the optimal aid allocation is such that all the aid is given through unconditional BS. We conclude that conditionality does not always improve aid effectiveness.

Previous versions circulated under the title “Dynamic incentive contracts under parameter uncertainty.”, We solve a long-term contracting problem with symmetric uncertainty about the agent’s quality and a hidden action of the agent. As information about quality accumulates, incentives become easier to provide because the agent has less room to manipulate the principal’s beliefs. This result is opposite to that in the literature on “career concerns” in which incentives via short-term contracts become harder to provide as the agent’s quality is revealed over time, We acknowledge the support of the Kauffman Foundation, of the NSF, of the Barcelona GSE and LABEX Investissements d’Avenir (ANR-11-IDEX-0003/Labex Ecodec/ANR-11-LABX-0047).

This paper examines the design of social investment funds (SIFs) and explores the ways they affect agents incentives to propose, select, and implement good projects. Compared with other forms of decentralized service provision, SIFs possess features of administratively delegated authority and deep political devolution. Where existing political institutions fail to deliver assistance to vulnerable groups, a well-designed SIF may represent a useful administrative alternative. This article reviews several features that provide incentives for both SIF staff and project beneficiaries and concludes with practical guidelines for designing and appraising social investment funds.

We consider a Principal-Agent model with the Principal being a seller who does not know perfectly how much the buyer (the Agent) is willing to pay for the good. The buyer-s preferences are hence his private information. The model corresponds to the nonlinear pricing problem of Maskin and Riley. We assume there are three types of Agents. The model is solved using "informational rents" as variables. In the last section we present the main characteristics of the optimal contracts in asymmetric information and some possible extensions of the model., {"references":["Armstrong, M. (1996). Multiproduct Nonlinear Pricing. Econometrica,\n64 (1): 51-75","Armstrong, M. and Rochet, J.C. (1999). Multidimensional Screening: A\nUser-s Guide. European Economic Review, 43: 959-979","Baron, D. and Myerson, R. (1982). Regulating a Monopolist with\nUnknown Costs. Econometrica, 50 (4): 911-930","Bolton, P. and Dewatripont, M. (2005). Contract Theory. MIT Press.\nCambridge, Massachusetts, London, England","Brighi, L. and D-Amato, M. (2002). Two Dimensional Screening: A\nCase of Monopoly Regulation. Research in Economics, 56(3): 251-264","Guesnerie, R. and Laffont, J.J (1984). A Complete Solution to a Class of\nPrincipal-Agent Problem with an Application to the Control of a Self-\nManaged Firm. Journal of Public Economics, 25: 329-369","Jullien, B. (2000). Participation Constraints in Adverse Selection\nModels. Journal of Economic Theory, 93 (1): 1-47","Kessler, A.S., Lulfesmann, C. and Schmitz, P.W. (2005). Endogenous\nPunishments in Agency with Verifiable ExPost Information.\nInternational Economic Review, 46(4): 1207-1231","Laffont J.J. and Martimort D., (2002). The Theory of Incentives. The\nPrincipal-Agent Model. Princeton University Press. Princeton and\nOxford\n[10] Laffont, J.J. and Tirole, J. (1986). Using Cost Observation to Regulate\nFirms. Journal of Political Economy, 94 (3): 614-641\n[11] Lewis, T.R. and Sappington, D.M. (1988). Regulating a Monopolist\nwith Unknown Demand and Cost Functions. RAND Journal of\nEconomics, 19 (3): 438-457\n[12] Malin, E. and Martimort, D. (2001). Les limites a la discrimination par\nle prix. Annales d-Economie et de Statistique, 62: 209-249\n[13] Maskin, E. and Riley, J. (1984). Monopoly with Incomplete\nInformation. RAND Journal of Economics, 15 (2): 171-196\n[14] Matthews, S. and Moore, J. (1987). Monopoly Provision of Quality and\nWarranties: An Exploration in the Theory of Multidimensional\nScreening, Econometrica, 55: 441-467\n[15] Rochet, J.C. and Chone, P. (1998). Ironing, Sweeping and\nMultidimensional Screening. Econometrica, 66 (4): 783-826\n[16] Rochet, J.C. and Stole, L.A. (2002). Nonlinear Pricing with Random\nParticipation. The Review of Economic Studies, 69 (1): 277-311\n[17] Saak, A.E. (2008). The Value of Private Information in Monopoly. The\nJournal of Industrial Economics, 56 (1): 169-189\n[18] Sibley, D.S. and Srinagesh, P. (1997). Multiproduct Nonlinear Pricing\nwith Multiple Taste Characteristics. RAND Journal of Economics, 28\n(4): 684-707\n[19] Spence, A.M. (1980). Multi Product Quantity-Dependent Prices and\nProfitability Constraints. Review of Economic Studies, 47(5): 821-841"]}

The thesis provides a theoretical rationale for the inclusion of high water mark (HWM) provisions in hedge fund management contracts. The results show (i) fund managers with better information about future fund profitability, have more incentives to efficiently close the fund it contracts include HWMs. (ii) Contracts with HWMs cause fund managers to smooth performance. HWMs provide both the incentive to underreport returns in good times as well as to overreport returns during difficult periods.

We analyze a long-term contracting problem involving common uncertainty about a parameter capturing the productivity of the relationship, and featuring a hidden action for the agent. We develop an approach that works for any utility function when the parameter and noise are normally distributed and when the effort and noise affect output additively. We then analytically solve for the optimal contract when the agent has exponential utility. We find that the Pareto frontier shifts out as information about the agent's quality improves. In the standard spot-market setup, by contrast, when the parameter measures the agent's "quality", the Pareto frontier shifts inwards with better information. Commitment is therefore more valuable when quality is known more precisely. Incentives then are easier to provide because the agent has less room to manipulate the beliefs of the principal. Moreover, in contrast to results under one-period commitment, wage volatility declines as experience accumulates.

International audience; Basing our work on the literature on psychology that highlights differences in confidence levels between men and women, we provide a rationale for the simultaneous existence of the two dimensions of the gender wage gap: (i) on average, men earn more than women and (ii) the difference in wages depends on the gender structure. We also argue that although an equal compensation policy does not eliminate the gender wage gap, it nonetheless increases social welfare. Finally, endogenizing the choice of task by agents, we show how women, in a vast majority, can self-select on low paying jobs.

This paper theoretically analyzes the Early Warning System (EWS) of the IMF based on the principal-agent model. We search for trade-off of the optimal contract of the IMF under the interim intervention and the noise of the signal. The main findings are as follows. First, when the net loss coming from noise under good fundamental is higher than the net gain by interim intervention under bad fundamental, the debtor country exerts less effort as the noise effect becomes larger. Secondly, when the net loss in good fundamental is smaller than the net gain in the bad fundamental, accurate signal may give rise to the moral hazard problem. Thirdly, when the marginal utility by the intervention of the IMF is higher on bad fundamentals than on good fundamentals, the higher ability of the IMF to mitigate the crisis will elicit a less policy effort from the country. On the other hand, when the economy has higher marginal utility in case of good fundamentals, deeper intervention of the IMF offers an incentive of a greater policy effort to the country. Fourthly, mandating the IMF to care about the country welfare as well as safeguarding its resources, does not necessarily mean the debtor country will exerts less efforts., 学術創成研究費 = Grant-in-Aid for Creative Scientific Research

Trabajo presentado al "12th CEPR European Summer Symposium in Labour Economics (ESSLE)" Munich 2010, al "Annual Meeting of the ASSET" Alicante 2010, al "XXXV Simposio de la Asociación Española de Economía" Madrid 2010, y al "SED Annual Meeting" Belgica 2011., We analyze a long-term contracting problem involving common uncertainty about a parameter capturing the productivity of the relationship, and featuring a hidden action for the agent. We develop an approach that works for any utility function when the parameter and noise are normally distributed and when the effort and noise affect output additively. We then analytically solve for the optimal contract when the agent has exponential utility. We find that the Pareto frontier shifts out as information about the agent’s quality improves. In the standard spot-market setup, by contrast, when the parameter measures the agent’s “quality”, the Pareto frontier shifts inwards with better information. Commitment is therefore more valuable when quality is known more precisely. Incentives then are easier to provide because the agent has less room to manipulate the beliefs of the principal. Moreover, in contrast to results under one-period commitment, wage volatility declines as experience accumulates., We acknowledge the support of the Kauffman Foundation and of the Barcelona GSE.

It is standard in agency theory to search for incentive-compatible mechanisms on the assumption that people care only about their own material wealth. Yet it may be useful to consider social forces in mechanism design and contract theory. We devise an experiment to explore optimal contracts in a hidden information context. A principal offers one of three possible contract menus to a team of two agents of unknown types. We observe numerous rejections of the more lopsided menus, and approach an equilibrium where one of the more equitable menus is proposed and agents accept a contract, selecting actions according to their types. The consensus menu differs across treatments that vary the payoffs resulting from a rejection. We find that an agent is more likely to reject a contract menu if her teammate rejected a contract menu in the previous period, suggesting that agents may be learning social norms; in addition, low-ability agents have a particularly adverse reaction to reduced wage offers.

We devise an experiment to explore optimal contracts in a hidden-information context. A principal offers one of three possible contract menus to a team of two agents of unknown skill levels, with both agents’ participation needed for production. We observe numerous rejections of the more lopsided menus, and principals respond by offering more favorable menus. Apart from rejections,wesee almost complete separation in agent choices according to the agent types. Behavior converges towards a consensus in which one of the more equitable menus is proposed and agents accept a contract. The consensus menu differs across two treatments in which we vary the payoffs resulting from a rejection. We find strong evidence of social learning by low-skill agents (but only for low-skilled agents), in that a low-skill agent is more likely to reject a contract menu if her teammate rejected a contract menu in the previous period. In addition, low-skilled agents have a particularly adverse reaction to reduced wage offers. This research was undertaken while Charness was affiliated with Universitat Pompeu Fabra.Wegratefully acknowledge the financial support of Spain’s Ministry of Education under grants CONSOLIDER INGENIO 2010 (CSD2006-0016), ECO2009-10531 and SEJ2006-11665-C02-00. Publicado

It is standard in agency theory to search for incentive-compatible mechanisms on the assumption that people care only about their own material wealth. Yet it may be useful to consider social forces in mechanism design and contract theory. We devise an experiment to explore optimal contracts in a hidden information context. A principal offers one of three possible contract menus to a team of two agents of unknown types. We observe numerous rejections of the more lopsided menus, and approach an equilibrium where one of the more equitable menus is proposed and agents accept a contract, selecting actions according to their types. The consensus menu differs across treatments that vary the payoffs resulting from a rejection. We find that an agent is more likely to reject a contract menu if her teammate rejected a contract menu in the previous period, suggesting that agents may be learning social norms; in addition, low-ability agents have a particularly adverse reaction to reduced wage offers. We gratefully acknowledge the financial support of Spain’s Ministry of Education under grants CONSOLIDER INGENIO 2010 (CSD2006-0016), and SEJ2006- 11665-C02-00.

We develop a theoretical model to compare the two major foreign aid modalities: project aid and budget support. These two modalities have a different impact on the production of 'developmental goods'. Firstly, conditionality can be associated with budget support, but only a subset of the developmental expenses - the observable ones - can be subject to conditionality. Secondly, when using project aid, the donors control the overall allocation of the aid resources. However, we consider that, because of limited harmonisation and coordination, project aid can be associated with a cost of imperfect fit. We develop a unified framework to compare these two modalities where we allow the simultaneous utilisation of both instruments. We show that all the aid should be given via budget support, no matter whether conditionality is used or not. Furthermore, we show that the optimal use of conditionality depends on the recipient's developmental preferences, the productivity of the inputs and the level of aid compared to the recipient's budget: when these parameters are relatively high, conditionality should be enforced. Otherwise, the optimal aid allocation is such that all the aid is given through unconditional budget support. We conclude that conditionality does not always improve the aid effectiveness.

This paper studies the impact of Önancing constraints on the equilibrium of a patent race. We develop a model where Örms Önance their R&D expenditures with an investor who cannot verify their e§ort. We solve for the optimal Önancial contract of any Örm along its best-response function. In equilibrium, any Örm in the race is more likely to win the more cash and assets it holds prior to the race, and the less cash and assets its rivals hold prior to the race. We use NBER evidence from pharmaceutical patents awarded between 1975 and 1999 in the US, patent citations, and COMPUSTAT to measure the effect of all the racing firms; cash holdings on the equilibrium winning probabilities. The empirical findings support our theoretical predictions.

This paper analyses whether sovereign default episodes can be seen as contingencies of optimal international lending contracts. The model considers a small open economy with capital accumulation and without commitment to repay debt. Taking first order approximations of Bellman equations, I derive analytical expressions for the equilibrium level of debt and the optimal debt contract. In this environment, debt relief generated by reasonable fluctuations in productivity is an order of magnitude below that generated by shocks to world interest rates. Debt relief prescribed by the model following the interest rate hikes of 1980-81 accounts for a substantial part of the debt forgiveness obtained by the main Latin American countries through the Brady agreements.

Transnational families where one or more members are employed abroad while others remain back home are likely be characterized by a higher degree of private information relative to households where members are co-resident. Consequently, international migrants, who can only imperfectly monitor and control uses of remittances by family members left behind, may remit less money home if intra-household preferences differ. On the other hand, a sending household's inability to monitor the migrant's financial choices may enable him to privately spend more, thereby remitting less. Using a novel dataset of married male Indian migrants working in Qatar and their wives back home that were interviewed simultaneously but separately, the extent of information asymmetry with respect to overseas earnings is measured by the discrepancy between migrant's report of his earnings and his wife's account. We find that the greater the under-reporting of overseas income by the wife, expressed as a ratio of her account to his own, the lower the annual remittances sent home. The finding demonstrates how remittance flows can be affected by the presence of information gaps arising from imperfect monitoring of intra-household allocations. It also shows the mechanism by which remitters may vary the amount transferred home by exploiting the incomplete information recipients have of foreign earnings. Interventions that improve monitoring of intra-household allocations could potentially enhance the amount of remittances sent.

In this note, we generalize the results obtained by Barday and Lesur (2005) by considering a bivariated non separable utility function. We characterize optimal health insurance contracts. Moreover, we show that under moral hazard a sufficiently high risk aversion implies that the optimal coverage and the optimal preventive effort are higher than with perfect information.

This paper presents a small open economy model with capital accumulation and without commitment to repay debt. The optimal debt contract specifies debt relief following bad shocks and debt increase following good shocks and brings first order benefits if the country's borrowing constraint is binding. Countries with less capital (with higher marginal productivity of capital) have a higher debt-GDP ratio, are more likely to default on uncontingent bonds, require higher debt relief after bad shocks and pay a higher spread over treasury. Debt relief prescribed by the optimal contract following the interest rate hikes of 1980-81 is more than half of the debt forgiveness obtained by the main Latin American countries through the Brady agreements.

Séminaire de recherche du LEO; It is widely recognized that the Euro area is an asymmetric monetary union which assembles countries with heterogeneous structures on financial, goods and labour markets stricken by asymmetric shocks. However, the main objective of the European Central Bank (ECB) is to preserve price stability for the euro area as a whole, and the ECB pays most of its attention to union-wide output and (principally) inflation, neglecting, at least on the level of principles, inflation and output divergences in union. In this paper, we wonder, at a theoretical level, about the social loss associated with such an objective based on aggregate magnitudes, and we search for solutions, namely an “optimal” contract for a common central bank. We show in particular that it is not necessarily a good thing that a common central bank worries about inflation divergences without being concerned about output divergences in union.

This paper analyzes the variety of optimal screening contracts in a relatively simple multidimensional framework a` la Armstrong and Rochet (1999), when only three types of agents are present. It is shown, among other things, that the well known principle in optimal contract theory of `no distortion at the top' does not carry over to the multidimensional case

The theory of incomplete contracting is rival to that of complete contracting as a frame of reference to understand contractual relationships. Both approaches rest upon diametrically opposed postulates and lead to very different policy conclusions. From a theoretical viewpoint, scrutiny of the postulates has revealed that both frameworks are reasonable. This paper designs and implements an empirical test to discern whether contracts are complete or incomplete. We analyze a problem where the parties? inability to commit not to renegotiate inefficiencies is sufficient for contractual incompleteness. We study optimal contracts with and without commitment and derive an exclusion restriction that is useful to identify the relevant commitment scenario. The empirical analysis takes advantage of a data set from Spanish soccer player contracts. Our test rejects the commitment hypothesis, which entails the acceptance of the existence of contractual incompleteness in the data. We argue that our conclusions should hold a fortiori in many other economic environments.

We analyze innovation race in a moral hazard setting. We develop a model in which two competing entrepreneurs work independently on the same project. The entrepreneurs do not possess any wealth of their own and their research is financed by a venture capitalist. The project, if successful, generates a prize, which is to be shared between the winning entrepreneur and the venture capitalist. The venture capitalist cannot observe the allocation of funds he provides, which creates a moral hazard problem. We compare a competitive setting with a benchmark case where the venture capitalist finances only one entrepreneur. We show that the venture capitalist can increase the efficiency of research (hence, his own expected profit from investments) and alleviate the moral hazard problem if he finances both entrepreneurs. This conclusion is unambiguous, when the entrepreneurs are at the same (the last) stage of R&D. It holds for a reasonably large range of parameters, when the entrepreneurs are at different stages of R&D.