type="main" <p>We examine the power of incentives in bureaucracies by studying contracts offered by a bureaucrat to her agent. The bureaucrat operates under a fixed budget, optimally chosen by a funding authority, and she can engage in policy drift, which we define as inversely related to her...</p>

After being offered a contract, an agent has the possibility to observe the state of nature. This enables him to refuse the contract in unfavorable states but burdens him with an observation cost. The authors show that the principal offers a contract in which the agent has no incentive to...

I study the optimal contract when a principal cannot commit to an audit. The contract must provide incentives for the agent to comply as well as for the principal to audit. The key tradeoff is efficiency versus noncompliance instead of the familiar rent versus efficiency. Information rent is...