In simple models of borrowing and lending with ex-post asymmetric information, Gale and Hellwig (1985) and Williamson (1986) have shown that optimal debt contracts are simple debt contracts where borrowers repay a fixed interest rate whenever possible and lenders seize all the profit when...

We study the optimal procurement mechanism when contract breach and abandoning a project may be efficient, either because of completion costs higher than anticipated or because of new and more lucrative opportunities for the contractor. When contractors have private information about their...