We derive the optimal contract between a principal and a liquidity-constrained agent in a stochastically repeated environment. The contract comprises a court-enforceable explicit bonus rule and an implicit fixed salary promise that must be self-enforcing. Since the agent's rent increases with...

Credit rating agencies do not only disclose simple ratings but announce watchlists (rating reviews) and outlooks as well. This paper analyzes the economic function underlying the review procedure. Using Moody's rating data between 1982 and 2004, we find that for borrowers of high...

This paper empirically examines the interplay of formal and relational contracting in the Spanish movie industry. To do so, I test implications from well-established theories on relational contracting using a unique data set from a Spanish movie exhibitor that contains detailed information on...

Experimental studies have consistently shown that cooperative outcomes can emerge even in finitely repeated games. Such outcomes are justified by existing reputation building models, which suggest that cooperative outcomes can be sustained if some subjects have other-regarding preferences. While...

Experimental studies have consistently shown that cooperative outcomes can emerge even in finitely repeated games. Such outcomes are justified by existing reputation building models, which suggest that cooperative outcomes can be sustained if some subjects have other-regarding preferences. While...

Economic theory regarding moral hazard at work is somewhat at odds with recent business evidence. Whereas firms in economically and technologically stable environments could apparently follow conventional wisdom when trying to reduce moral hazard through tight supervision and incentive packages,...