We base a contracting theory for a start-up firm on an agency model with observable but nonverifiable effort, and renegotiable contracts. Two essential restrictions on simple contracts are imposed: the entrepreneur must be given limited liability, and the investor’s earnings must not decrease...

A search-theoretic model of the retail market for illegal drugs is developed. Trade occurs in bilateral, potentially long-lived matches between sellers and buyers. Buyers incur search costs when experimenting with a new seller. Moral hazard is present because buyers learn purity only after a...