The marginal cost of effort often increases as effort is exerted. In a dynamic moral hazard setting, dynamically increasing costs create information asymmetry. This paper characterizes the optimal contract and helps explain the popular yet thus far puzzling use of non-linear incentives, for...

Changes in the extent of multi-market contact (MMC) between firms often affect market outcomes – quantities and prices. We show that a strategic but purely competitive effect of changes in MMC can change the quantity provided in a market by a firm by as much as 50%, and the prices a firm sets...

Earlier work characterized pricing with switching costs as a dilemma between a short-term 'harvesting' incentive to increase prices versus a long-term 'investing' incentive to decrease prices. This paper shows that small switching costs may reduce firm profits and provide short-term incentives...

Intermediaries may bargain with several upstream providers on behalf of consumers who do not directly pay for consumption, such as an insurer bargaining with hospitals. We show that the common Nash- in-Nash solution, while useful for estimation, can predict Nash overpricing: prices that exceed...

Abstract. Hierarchy in organizations has long been regarded as a source of moral hazard problems and an indication for some inherent difference between workers in different hierarchical positions. However, hierarchies may actually be a response to moral hazard problems. If past effort, rather...

We propose and test a model of the strategic interaction between public and private insurers in the physician services market. We depart from the standard healthcare service pricing model and allow physicians to (partially) adjust patient access based on price differences between insurers....