The problem of designing tournament contracts under limited liability and alternative performance measures is considered. Under risk neutrality, only the best performing agent receives an extra premium if the liability constraint becomes binding. Under risk aversion, more than one prize is...

I analyze the use of alternative performance measures using an agency model that incorporates both formal and informal agreements. I show that under the proper combination of verifiable and unverifiable performance measures, the two types of contract complement each other regardless of the...

We analyze a two-period agency problem with limited liability and non-verifiable information. The principal commits to a dynamic bonus pool comprising a fixed total payment that may be distributed over time to the agent and a third party. We find that the optimal two-period contract features...

Several empirical findings have challenged the traditional view on the trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empirical puzzle on the positive relationship between risk and incentives can be explained....