We show that a manufacturer may prefer to offer a return policy when dealing with a retailer who holds advance knowledge about market conditions. Roughly stated, the manufacturer offers a liberal return allowance in lieu of a lower price to satisfy a retailer facing unfavorable market...

We characterize the optimal contract between a principal and a risk-neutral, wealth-constrained agent when an adverse selection problem follows a moral hazard problem. The optimal contract in this setting often is more steeply sloped for the largest output levels than is the optimal contract in...

We construct a simple model of the regulatory process in which a monopoly firm has private information about its capabilities and its cost-reducing activities. The optimal regulatory policy offers the firm a choice between two regulatory regimes, one of which resembles price-cap regulation. The...

We examine profit-maximizing nonlinear pricing under a stylized version of the FCC's price-cap plan for AT&T, whereby the firm's average revenue in each period is constrained not to exceed some fixed level. When average revenue in each period is calculated as the ratio of total revenue in that...

To examine the potential gains from a second production source, we examine how source switching is optimally structured. The model focuses on a purchaser who manages the acquisition process, an incumbent supplier, and a potential entrant or second supplier. Because the costs of the incumbent and...

In a multistage model of defense procurement we show that a second source of production is often of limited value. In many instances, second sourcing will result in strictly less expected welfare than is generated by sole sourcing.

We examine optimal dynamic incentive contracts when adverse selection and moral hazard problems are present. We find that early success is optimally penalized in the sense that the agent who succeeds early subsequently faces a lower-powered incentive contract. Penalizing success in this manner...

We consider a regulatory problem in which there is a hierarchy of control. Consumers (or Congress) direct the activities of a regulator, who, in turn, oversees the activities of a monopolistic firm. Both the regulator and the firm are self-interested actors. The regulator must be motivated to...

We analyze a procurement problem in which the quality of the delivered product can be observed perfectly by the buyer and supplier, but may not be verifiable, i.e., may not be observable to any third party. We present a set of plausible conditions under which the equilibrium welfare of both the...