This note offers a unified framework for all contractual relationships. In particular, it defines incomplete contracts and explains simple contracts. Although widely used in practice, incomplete contracts have not been well defined in the literature. The existing definitions of contracts are...

A recursive dynamic agency model is developed for situations where the state of nature follows a Markov process. The repeated agency model is a special case. It is found that the optimal effort depends not only on current performance but also on past performances, and the disparity between...

Why are bonus/promotion schemes so widely used in reality? Are they effective in alleviating incentive problems? For the standard agency model, this paper proposes an alternative solution to the classical solution in Holmström (1979). The advantages of our solution are that (1) it is a simple...

One major difficulty with the standard agency model is that it generally does not provide a closed-form solution. A second major difficulty is that the theory relies on the troublesome first-order approach. To avoid these difficulties but at the same time to allow a general utility function,...