Consider an agent who can costlessly add mean-preserving noise to his output. To deter such risk-taking, the principal optimally offers a contract that makes the agent's utility concave in output. If the agent is risk-neutral and protected by limited liability, this concavity constraint binds...

This paper provides a complete characterization of equilibria in a game-theoretic version of Rothschild and Stiglitz's (1976) model of competitive insurance. I allow for stochastic contract offers by insurance firms and show that a unique symmetric equilibrium always exists. Exact conditions...

This paper generalizes a conceptual insight in dynamic contracting with quasilin- ear payoffs: the principal does not need to pay any information rents for extract- ing the agent’s “new” private information obtained after signing the contract. This is shown in a general model in which the...

A buyer makes an offer to a privately informed seller for a good of uncertain quality. Quality determines both the seller's valuation and the buyer's valuation, and the buyer evaluates each contract according to its worst-case performance over a set of probability distributions. This paper...

We study a principal-agent model with moral hazard and adverse selection. Risk-neutral agents with limited liability have arbitrary private information about the distribution of outputs and the cost of effort. We show that under a multiplicative separability condition, the optimal mechanism...

We study full surplus extraction and implementation in dynamic environments. We exploit intertemporal correlations of agents' types to construct within-period ex post incentive compatible mechanisms. First, we formulate one-shot environments, in which a single agent has a hidden type and the...

We show that a solution to the problem of mechanism selection by an informed principal exists in a large class of environments with “generalized private values”: the agents’ payoff functions are independent of the principal’s type. The solution is an extension of Maskin and Tirole’s...

A new approach to moral hazard is presented. Once local incentive compatibil- ity is satis?ed, the problem of verifying global incentive compatibility is shown to be isomorphic to the problem of comparing two classes of distribution functions. Thus, tools from choice under uncertainty can be...

Collecting and processing large amounts of data is becoming increasingly crucial in our society. We model this task as evaluating a function f over a large vector x=(x1,…,xn), which is unknown, but drawn from a publicly known distribution X. In our model, learning each component of the input x...

Principal-agent models are pervasive in theoretical and applied economics, but their analysis has largely been limited to the ``first-order approach'' (FOA) where incentive compatibility is replaced by a first-order condition. This paper presents a new approach to solving a wide class of...