This paper offers a novel explanation for urban blight and endogenous divergence in the overall quality and wealth of neighborhoods and simultaneously derives the salient features of actual urban renewal and other aid programs from optimizing government behavior based on collective public...

We consider performance contracts with firm private information. The verifiable components of the contract, an up-front wage and employment, may serve both as a signal and a performance incentive. Job rent may be necessary for signaling and, since efficient signaling is multidimensional, there...