agent. Monitoring ensures effort but is costly to the principal. The optimal contract involves monetary payments and …

—the theory of recursive contracts. Recursive formulations allow us to reduce often complex models to a sequence of essentially … of the basic theory: the Revelation Principle, formulating and simplifying the incentive constraints, using promised … advanced topics: duality theory and Lagrange multiplier techniques, models with lack of commitment, and martingale methods in …

characterize the optimal contract when both parties have CARA utility. The firm improves on production efficiency as it grows, and …