We develop a model of nonstationary relational contracts in order to study internal wage dynamics. Workers are heterogenous and each workers’ ability is both private information and fixed for all time. Learning therefore occurs within employment relationships. The inferences, however, are confounded by moral hazard: the distribution of output is determined by both the worker’s type and by his u...

We examine commonly observed forms of payment, such as milestones, royalties, or consulting contracts as ways of engaging inventors in the development of licensed inventions. We show that when milestones are feasible, royalties are not optimal unless the licensing firm is risk averse. The model also predicts the use of consulting contracts which improve the firm’s ability to monitor inventor ef...

From Team Spirit to Jealousy: The Pitfalls of Too Much Transparency Free riding in team production arises because individual effort is not perfectly observable. It seems natural to suppose that greater transparency would enhance incentives. Therefore, it is puzzling that team production often lacks transparency about individual contributions despite negligible costs for providing such informati...

Past work has shown that asymmetric information and asymmetric ownership affect the possibility of efficient dissolution of partnerships. We show in this paper that control is also a central determinant of the possibility of efficient implementation. We demonstrate this point by analyzing a benchmark case of asymmetric control where a single partner exercises complete control under the status q...

This paper investigates the circumstances under which negotiating simultaneously over multiple issues or assets helps reduce ineffi ciencies due to the presence of asymmetric information. Consider the case where one agent controls all assets. One would expect that strong substitutabilities among assets, would help trade, as the seller would value the additional units less. We show that this int...

When do competing principals independently choose to share the information obtained from their privately informed agents? Information sharing a¤ects contracting relationships within opponent organizations and induces players’strategies to be correlated via the distortions channel. We show that principals’incentives to share information depend on the nature of upstream externalities and the corr...

Procurement contracts are often renegotiated because of changes that are required after their execution. Using highway paving contracts we show that renegotiation imposes significant adaptation costs. Reduced form regressions suggest that bidders respond strategically to contractual incompleteness and that adaptation costs are an important determinant of their bids. A structural empirical model...