The dynamics of incentive contracts under asymmetric information have long been an important topic in economics. We address this topic in this paper by considering a stochastic, two-period principal-agent relationship, in which the true state of the world can take on two possible values and is...

We study how financial intermediation affects real market variables when an incumbent firm is threatened by entry to its market and must contract with a bank for outside funds. Contracts between the bank and the monopolist are short-term and redesigned after the entry decision of a second firm...