This paper studies the intertemporal problem of a monopolistic firm that engages in productivity enhancing innovations to reduce its labor costs. If the level of wages is sufficiently low, the firm's rate of productivity growth approaches the rate of wage growth and eventually the firm reaches a...

This paper extends the revelation principle to environments in which the mechanism designer cannot fully commit to the outcome induced by the mechanism. We show that he may optimally use a direct mechanism under which truthful revelation is an optimal strategy for the agent. In contrast with the...

We describe the evolution of productivity growth in a competitive industry. The exogenous wage rate determines the firms' engagement in labor productivity enhancing process innovation. There is a unique steady state of the industry dynamics, which is globally stable. In the steady state, the...

This paper provides new analytical tools for studying principal{agent problems with adverse selection and limited commitment. By allowing the principal to use general communication devices we overcome the literature's common, but overly restrictive focus on one{shot, direct communication. In...

Lecture on the first SFB/TR 15 meeting, Gummersbach, July, 18 - 20, 2004This paper provides an analytical framework for studying principal-agent problems with adverse selection and limited commitment. By allowing the principal to use noisy communication we solve two fundamental problems of...

Contestants have to choose whether to initiate a contest or war, or whether to remain peaceful for another period. We find that agents wait and initiate the contest once their rival is sufficiently weak to be an easy target.

This paper analyzes bilateral contracting in an environment with contractual incompleteness and asymmetric information. One party (the seller) makes an unverifiable quality choice and the other party (the buyer) has private information about its valuation. A simple exit option contract, which...

This paper views authority as the right to undertake decisions that impose externalities on other members of the organization. When only decision rights can be contractually assigned to one of the organization’s stakeholders, the optimal assignment minimizes the resulting inefficiencies...

This paper views authority as the right to undertake decisions that have external effects on other members of the organization. Because of contractual incompleteness, monetary incentives are insufficient to internalize these effects in the decision maker’s objective. The optimal...

Consider a market where an informed monopolist sets the price for a good or asset with a value unknown to potential buyers. Upon observing the price, buyers may pay some cost for information about the value before deciding on purchases. To restrict buyer beliefs we generalize the idea of the...