This study analyzes a continuous–time N–agent Brownian moral hazard model with constant absolute risk aversion (CARA) utilities, in which agents’ actions jointly determine the mean and the variance of the outcome process. In order to give a theoretical justification for the use of linear contracts, as in Holmstrom and Milgrom (1987), we consider a variant of its generalization given by Sung (19...

We propose a model of flexible trade agreements in which verifying the prevailing contingencies is possible but costly. Two types of flexibility emerge: contingent protection, which requires governments to verify the state of the world, and discretionary protection, which allows governments to set tariffs unilaterally. The structure of the GATT/WTO agreement provides these two types of flexibil...

This paper discusses the literature on the enforcement of incomplete contracts. It compares legal enforcement to enforcement via relationships and reputations. A number of mechanisms, such as the repeat purchase mechanism (Klein and Le er (1981)) and e ciency wages (Shapiro and Stiglitz (1984)), have been o ered as solutions to the problem of enforcing an incomplete contract. It is shown that t...

Should principals explain and justify their evaluations? In this paper the principal’s evaluation is private information, but she can provide some justifications by sending a costly message. Indeed, it is optimal for the principal to explain her evaluation to the agent if and only if the evaluation turns out to be bad. The justification guarantees the agent that the principal has not distorted ...

urbanization agglomeration that is named jacobs externalities, refers to the role of economic diversification in urban. localization agglomeration, marshal-arrow-romer (mar) externalities, is related to the concentration of firms activated in a special industry within a specified place. the purpose of this research is to explore the impact of different types of agglomeration economies on employ...

the main objective of this paper is to study the relationship between the energy consumption (energy use intensity), economic growth, and co2 emission in iran. to that end, we use time series data of iran during 1967–2004. in order to examine the long-run relationship among these variables, the johanson-juselius cointegration method is used along with vecm. the main finding of this study shows ...

The seminal work by Grossman and Hart (1986 “The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration”, 94 Journal of Political Economy 691–19.) made the study of firm boundaries susceptible to formal economic analysis, and illuminated an important role for markets in providing incentives. In this essay, I discuss some new directions that the literature has taken since....

This paper studies the equilibrium predatory practices that may arise when the borrowers have behavioral weaknesses. Rational lenders offer short term contracts that can be renewed at the cost of paying a penalty fee. We show how the optimal contracts depend on the degree of näıveté of the time inconsistent customers. Penalty fees have a dual role : they increase market share by providing a use...

We consider a model in which a principal must both repay a loan and motivate an agent to work hard. Output is non-contractible, so the principal faces a commitment problem with both her creditor and her agent. In a profit-maximizing equilibrium, the agent’s productivity is initially low and increases over time. Productivity continues increasing even after the debt has been repaid, eventually co...

This paper examines the e¤ects of social ties on governance. Social ties are per se neutral and merely act as incentive bridges that transmit incentives between individuals. Whether such transmission of incentives improves or undermines governance depends on the particular incentives transmitted. We demonstrate this through a delegated monitoring model where the supervisor is friends with the a...