The government wants two tasks to be performed. In each task, unobservable effort can be exerted by a wealth-constrained private contractor. If the government faces no binding budget constraints, it is optimal to bundle the tasks. The contractor in charge of both tasks then gets a bonus payment...

A government agency wants a facility to be built and managed to provide a public service. Two different modes of provision are considered. In a public-private partnership, the tasks of building and managing are bundled, whereas under traditional procurement, these tasks are delegated to separate...

We revisit the contract-theoretic literature on privatization initiated by Hart et al. (1997). This literature has two major shortcomings. First, it is focused on ex-ante investment incentives, whereas ex-post inefficiencies which are ubiquitous in the real world cannot be explained. Second,...

Deadlines and penalties are widely used to incentivize effort. We model how these incentive contracts affect the work rate and time taken in a procurement setting, characterizing the efficient contract design. Using new micro-level data on Minnesota highway construction contracts that includes...

The privatization literature depicts the choice whether to contract out as a tradeoff between excessive private investment in quality-reducing cost saving and inadequate public investment in cost-increasing quality improvement, under circumstances where neither the amount of investment nor the...

A well-functioning public expenditure management (PEM) system is considered a critical pillar of government efficiency, on par with a low-distortion tax system and efficient tax administration. The paper discusses PEM systems in developing countries using an analytical framework based on...

We analyze a dynamic principal-agent problem in which the agent's effort in each period has strong persistent effects. We show that a simple contract, where the reward depends only on the final outcome, is explained as the optimal contract derived in the principal's optimization problem. The...

I study a continuous-time principal-agent model in which a multitasking agent engages in unobserved risk-taking. Risk-taking creates short-term profits but also increases the chance of large losses. The optimal contract incentivizes excessive risk-taking when the agent has insufficient skin in...

Moral hazard models with hidden saving decisions are useful to study such diverse problems as unemployment insurance, income taxation, executive compensation, or human capital policies. How can we solve such models? In general, this is very difficult. Under the conditions derived in this paper,...

Although stock options are commonly observed in chief executive o±cer (CEO) compensation contracts, there is theoretical controversy about whether stock options are part of the optimal contract. Using a sample of Fortune 500 companies, we solve an agency model calibrated to the company-specific...