In this article we study the effect of uncertainty on an entrepreneur who must choose the capacity of his business before knowing the demand for his product. The unit profit of operation is known with certainty but there is no flexibility in our one-period framework. We show how the introduction...

The First-Order Approach (FOA) to principal agent problems is very convenient and mathematically tractable. However, existing results show that the FOA is valid only for additively separable utility functions. This is somewhat limiting. In this paper sufficient conditions are identified that...