How should a principal delegate a task to an agent? This paper studies the principal's choice of an agent's freedom of action as an incentive problem. The optimal contract simultaneously copes with two problems of asymmetric information: the agent must be motivated to acquire productive...

We study a procurement problem where the distribution of types is determined by a productive, yet unobservable, prior effort of the agent. Productivity enhancing investments and learning are discussed as canonical examples. Our analysis explains unusually high levels of production for the most...

This paper investigates the role of financial constraints in R&D races of the type used in Schumpeterian growth theory. In a world of perfect capital markets these models predict that all innovations come from industry outsiders. In reality, however, we observe a pronounced persistence of some...