The continuous-time principal-agent model with exponential utility developed by Holmström and Milgrom (1987) and generalized by Schättler and Sung (1993, 1996) and Sung (1995) admits a simple closed-form solution: The second-best sharing rule is linear in output. Unfortunately, the first-best...

There are many situations in which a principal delegates decisions to a better-informed agent but does not choose to give full discretion. This paper discusses one reason why this might be desirable: the agent may have tastes that differ from those of the principal. Limiting the agent's...

We study the implication of the standard principal-agent theory developed by Holmstrom and Milgrom (1987) on the endogenous matching of CEO and firm. We show that a CEO with low disutility of effort, low risk aversion, or both should manage a safer firm in the matching equilibrium, and that a...

In this paper, we extend the state-contingent production approach to principal-agent problems to the case where the state space is an atomless continuum. The approach is modelled on the treatment of optimal tax problems. The central observation is that, under reasonable conditions, the optimal...

The make-or-buy decision is analyzed in a three-layer principal-management-agent model. There is a cost-saving/quality tradeoff in effort provision. The principal faces the choice between employing an in-house management and contracting with an independent management; the cost-saving incentives...

The first-order approach is a technical shortcut widely used in agency problems. The best known set of sufficient conditions for its validity are due to Mirrlees and Rogerson and require that the distribution function is convex in effort and has a likelihood ratio increasing in output. Only one...

The analysis covers 27 international organizations in the years 1950- 2001. From the first to the last year, staff increased at a compound average rate of 3.2 percent per annum. Since the number of member states rose by only 2.5 percent, the elasticity of staff to member states is larger than...