Consider a setting in which a principal induces effort from an agent to reduce the arrival rate of a Poisson process of adverse events. The effort is costly to the agent, and unobservable to the principal, unless the principal is monitoring the agent. Monitoring ensures effort but is costly to...

Recent empirical studies conclude that small firms have higher but more variable growth rates than large firms. To explore the effect of this size-dependence regularity on moral hazard and investment, we develop a continuous-time agency model with time-varying firm size. Firm size is a diffusion...