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Author : Spyridon Terovitis
Publisher :
ISBN 13 :
Total Pages : 442 pages
Book Rating : 4.:/5 (11 download)
Download or read book Essays in Economics of Information and Optimal Contracting written by Spyridon Terovitis and published by . This book was released on 2017 with total page 442 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Salvatore Piccolo
Publisher :
ISBN 13 :
Total Pages : 225 pages
Book Rating : 4.:/5 (71 download)
Download or read book Essays on Industrial Organization and Economics of Information written by Salvatore Piccolo and published by . This book was released on 2006 with total page 225 pages. Available in PDF, EPUB and Kindle. Book excerpt: In my dissertation, I study equilibrium and optimal contracting between parties in relationships with asymmetric information. The welfare and private properties of incomplete contracting are analyzed both in imperfectly and perfectly competitive markets. The first essay analyzes the welfare effects of incomplete contracting in a principal-agent set-up. I study Resale Price Maintenance, a complete contract, and quantity fixing, an incomplete one, in a successive monopolies framework with information asymmetries. Both contracts entail a double marginalization driven by information rents distributed to the retailer. When firms behave non-cooperatively, the principal imposes retail price restrictions, and the impact of complete contracting on consumers' surplus is ambiguous. When, firms maximize ex ante joint profits, policy recommendations are unambiguous: if the preferred contracting mode from an ex ante viewpoint entails retail price restrictions, it also raises consumers' surplus, thereby producing a Pareto improvement relative to incomplete contracts. The second essay examines the welfare effects of contracting incompleteness when agents' preferences and productivity depend on their health status, and occupational choices affect individual health distributions. Efficiency requires agents of the same type to obtain different expected utilities if assigned to different occupations. Workers with riskier jobs get higher (lower) expected utilities if health affects production (consumption) capabilities. Competitive equilibria are first-best if complete contracts are enforceable, but typically not if only incomplete ones are traded. Compensating wage differentials are incompatible with ex-ante efficiency. The third essay provides a rationale for contracting incompleteness in a competing organizations set-up. I show that principals dealing with competing agents may leave contracts silent on some verifiable performance measures when certain aspects of agents' activity are noncontractible. Two effects are at play once one moves from a complete to an incomplete contract. First, reducing the number of screening instruments has a detrimental effect on principals' profits as it makes information revelation more costly. Second, it may create strategic value by forcing competing organizations to behave in a more friendly manner at the competitive stage.
Author : Gerald A. Feltham
Publisher : Springer Science & Business Media
ISBN 13 : 9400926677
Total Pages : 412 pages
Book Rating : 4.4/5 (9 download)
Download or read book Economic Analysis of Information and Contracts written by Gerald A. Feltham and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 412 pages. Available in PDF, EPUB and Kindle. Book excerpt: The three coeditors knew John Butterworth for many years and had worked closely with him on a number of research projects. We respected him as a valuable colleague and friend. We were greatly saddened by his untimely death. This book is an attempt to remember him. We dedicate the volume to John with thanks for the contributions he made to our research, to the Faculty of Commerce and Business Administration at the University of British Columbia, and to the accounting profession. This volume contains twelve invited papers on the general topic of the economic theory of information and contracts. We asked leading scholars who had known John to contribute papers. The response was very gratifying. The authors provided us with new strong research papers that should make a lasting contribution to the accounting and information economics research literature, and make us all proud to have put this volume together. The research papers in the volume are in three sections: information evaluation in multi person conte)l:ts; contracting in agencies under moral hazard; and contracting in agencies with private information. We begin part I with Jerry Feltham's review of John Butterworth's pioneering contributions to the accounting and information economics literature. This is followed by an introduction to the papers in the volume and the papers themselves.
Author : Wentao Fu
Publisher :
ISBN 13 :
Total Pages : 310 pages
Book Rating : 4.:/5 (14 download)
Download or read book Essays on Economics of Information, Contract and Experimentation written by Wentao Fu and published by . This book was released on 2018 with total page 310 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Jonathan T. Pogach
Publisher :
ISBN 13 :
Total Pages : 134 pages
Book Rating : 4.:/5 (72 download)
Download or read book Essays in Information Economics written by Jonathan T. Pogach and published by . This book was released on 2010 with total page 134 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Giovanni Reggiani
Publisher :
ISBN 13 :
Total Pages : 127 pages
Book Rating : 4.:/5 (958 download)
Download or read book Essays in Political Economics and Information Acquisition written by Giovanni Reggiani and published by . This book was released on 2016 with total page 127 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three chapters respectively on optimal contracts to incentivize information acquisition, strategic voting, and conflict of interest. The first chapter, joint work with A. Clark, studies a principal-agent problem with limited-liability where an agent is hired to acquire information and take a decision on behalf of a risk-neutral principal. The principal cannot monitor the agent's attentiveness when acquiring information and so she provides incentives with a contract that depends on the realized state of the world and the chosen decision. We build a model for this problem where the agent's cost of acquiring information is given by the average reduction in entropy. We show that the optimal contract has a linear structure: the agent receives a fixed fraction of output together with a state and decision contingent payment. The optimal contract is simple, in terms of dimensionality, and features an incentive structure analogous to that of portfolio managers in the hedge fund industry. We extend this result to problems with arbitrary utilities, a generalized form of cost functions, a participation constraint for the agent, a wealth constraints for the principal, and imperfect revelation of the state. We also show that only entropic costs can generate the separability of state and decision payments and solve for the equivalent optimal contract in a dynamic setting. Lastly we perform Monte Carlo simulations to test the robustness of our initial contract for different utilities and compare its welfare to purely linear and to unrestricted contracts. The second chapter, joint with F. Mezzanotti, provides a lower bound for the extent of strategic voting. Voters are strategic if they switch their vote from their favorite candidate to one of the main contenders in a tossup election. High levels of strategic voting are a concern for the representativity of democracy and the allocation efficiency of government goods and services. Recent work in economics has estimated that up to 80% of voters are strategic. We use a clean quasi experiment to highlight the shortcomings of previous identification strategies, which fail to fully account for the strategic behavior of parties. In an ideal experiment we would like to observe two identical votes with exogenous variation in the party victory probability. Among world parliamentary democracies 104 have a unique Chamber, 78 have two Chambers with different functions, and only one nation has two Chambers with the same identical functions: Italy. This allows us to observe two identical votes and therefore a valid counterfactual. In addition, the majority premia are calculated at the national level for the Congress ballot and at the regional level for the Senate ballot. This provides exogenous variation in the probability of victory. Because the two Chambers have identical functions, a sincere voter should vote for the same coalition in the two ballots. A strategic voter would instead respond to regions' specific victory probabilities. We combine this intuition with a geographical Regression Discontinuity approach, which allows us to compare voters across multiple Regional boundaries. We find much smaller estimates (5%) that we interpret as a lower bound but argue that it is a credible estimate. We also reconcile our result with the literature larger estimates (35% to 80%) showing how previous estimates could have confounded strategic parties and strategic voters due to the use of a non identical vote as counterfactual. The third chapter estimates the distortions due to conflict of interest during Berlusconi's rule over Italy. The identification is based on the efficient market hypothesis. In particular, I use electoral polls and stock market data to estimate the effect of surprising electoral outcomes, defined as the difference between actual and expected electoral results, on the stock market performance of Berlusconi's firms. I find evidence that there are substantial distortions due to conflict of interest: 6% increase in market capitalization per percentage point of a positive electoral surprise. I then match two of Berlusconi's companies operating in the same media sector but in different countries. This allows me to further test whether the extra returns are due to political distortions under different regulatory authorities. I find that the abnormal returns can be ascribed to "conflict of interest" rather than to the CEO-founder stepping down. Finally, I perform robustness tests to ensure that the cumulative abnormal returns estimates are not spurious.
Author : Delong Meng
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (11 download)
Download or read book Essays on the Economics of Information written by Delong Meng and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three essays on the economics of information. We study economic situations that involve information asymmetry. For example in an informal insurance market the borrower has private information about her income that the lender cannot observe. In a social learning context different agents possess different signals about the state of the world. In a principal-agent problem the agent could privately observe a productivity shock that is unknown to the principal. We study these situations using tools from mechanism design. In Chapter 1 we study repeated communication between a long-run sender and a long-run receiver. In each period the sender observes the state of the world -- which is i.i.d. across time -- and reports the state to the receiver. The receiver takes an action based on the history of the sender's reports and public randomization signals. The receiver fully commits to her action at each point in history, and the sender commits to nothing. We allow arbitrary state space, action space, and preferences. We characterize the set of possible payoffs for the sender and the receiver when both are infinitely patient -- i.e., as the discount factor goes to one. We also study the payoff set when the discount factor is less than (but close to) one. In particular we bound the rate of convergence to points on the frontier of the limit payoff set; the rate of convergence differs radically for discrete and continuous models, and we provide a unified view of the rate of convergence results based on the shape of the frontier of the limit payoff set. We discuss three applications of our results. First for dynamic CEO compensation we characterize the firm's revenue from the optimal contract as the interest rate goes to zero. Second we show that dynamic delegation -- a common problem in agencies -- is equivalent to our model. Third we study a reputation problem where the sender's preference is unknown, and we give a lower bound for the receiver's expected payoff as the discount factor goes to one. In Chapter 2 we study a social learning model in which people choose who to talk to and strategically exchange information. Agents start with heterogeneous priors about an unknown state of the world. First each agent chooses a partner. Then everyone observes a private i.i.d. signal and sends a message to her partner. Finally everyone takes an action based on her prior, her private signal, and her partner's message. Our main finding is that when the signal space and action space are binary, assortative matching arises in equilibrium, but it is generally inefficient for social welfare and information aggregation. In addition we construct counter-examples (non-assortative matching) in the case of multiple signals or multiple actions. In Chapter 3 (joint with Gabriel Carroll) we study a principal-agent problem where the agent has private information about her productivity shock. Our goal is to investigate the idea that linear contracts are reliable because they give the same incentives for effort at every point along the contract. We ask whether this reliability leads to a microfoundation for linear contracts, when the principal is profit-maximizing. We consider a principal-agent model with risk neutrality and limited liability, in which the agent observes the realization of a mean-zero shock to output before choosing how much effort to exert. We show that such a model can indeed provide a foundation for reliable contracts, and illustrate what elements are required. In particular, we must assume that the principal knows a lower bound, but not an upper bound, on the shocks.
Author : Inés Macho-Stadler
Publisher : Oxford University Press
ISBN 13 : 0191512079
Total Pages : pages
Book Rating : 4.1/5 (915 download)
Download or read book An Introduction to the Economics of Information written by Inés Macho-Stadler and published by Oxford University Press. This book was released on 1996-10-03 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this revised second edition, An Introduction to the Economics of Information covers the consequences for the character and efficiency of the interaction between individuals and organizations when one party has more or better information on some aspect of the relationship. This is the condition of asymmetric information, under which the information gap will be exploited if, by doing so, the better-informed party can achieve some advantage. The book is written for a one-semester course for advanced undergraduates taking specialized course options, and for first-year postgraduate students of economics or business. After an introduction to the subject and the presentation of a benchmark model in which both parties share the same information throughout the relationship, chapters are devoted to the three main asymmetric information topics of Moral Hazard, Adverse Selection, and Signalling. The wide range of economic situations where the conclusions are applied includes such areas as finance, regulation, insurance, labour economics, health economics, and even politics. Each chapter presents the basic theory before moving on to applications and advanced topics. The problems are presented in the same framework throughout to allow easy comparison of the different results. This new edition incorporates extended exercises to test the student's understanding of the material, and to develop the tools and skills provided by the main text to solve other, original problems.
Author : Jacques Paul Lawarrée
Publisher :
ISBN 13 :
Total Pages : 418 pages
Book Rating : 4.:/5 (33 download)
Download or read book Incentive Contracts with Strategic Agents written by Jacques Paul Lawarrée and published by . This book was released on 1990 with total page 418 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Eva I. Hoppe-Fischer
Publisher : Springer
ISBN 13 : 3658241330
Total Pages : 211 pages
Book Rating : 4.6/5 (582 download)
Download or read book Essays on Contract Design and Incentive Provision written by Eva I. Hoppe-Fischer and published by Springer. This book was released on 2019-02-19 with total page 211 pages. Available in PDF, EPUB and Kindle. Book excerpt: Contract theory, which emphasizes the importance of unverifiable actions and private information, has been a highly active field of research in microeconomics in the last decades. This thesis is divided into two parts. Part I consists of three chapters that study contract-theoretic models which are motivated by the classic procurement problem of a principal who wants an agent to deliver a certain good or service. In such models it is typically assumed that decision makers are interested in their own monetary payoffs only. Moreover, they have unlimited cognitive abilities and behave in a perfectly rational way. Yet, in practice people often do not behave this way. While empirical research is very difficult in contract theory, laboratory experiments have recently turned out to be an important source of data. In Part II, three experimental studies are presented that investigate contract-theoretic problems brought up in Part I.
Author : Justin R. Downs
Publisher :
ISBN 13 :
Total Pages : 102 pages
Book Rating : 4.:/5 (124 download)
Download or read book Essays on Optimal Contracts with Overconfidence written by Justin R. Downs and published by . This book was released on 2020 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies the effect of overconfidence on markets and organizations with asymmetric information. In the first chapter, I introduce overconfidence into a standard information gathering contracting model. A principal (she) hires an agent (he) to gather information about a project's cost before he implements the project, and the agent overestimates the probability of having a low implementation cost. The agent's overconfidence makes him more willing to sign the contract, but less willing to gather information, and increases in overconfidence may increase or decrease the principal's profit. In the second chapter, I study a labor market where firms hire overconfident workers who have private information about their productivity. I derive the optimal contracts for both a monopsonistic market, where one firm makes take-it-or-leave-it offers to the workers, as well as a competitive market, where many firms compete for the services of workers. Overconfidence causes the optimal contract to be distorted away from the efficient outcome in both markets, but a monopsonistic firm internalizes these distortions while a competitive firm does not. The main result is that monopsonistic markets can be more efficient than competitive markets. In the third chapter, I provide a review of several mathematical definitions of overconfidence used in the contract theory literature and apply them all to a generalized version of the information gathering model from Chapter 1. The effects overconfidence has on the agent's willingness to participate, to gather information, and on the principal's profit are all sensitive to the mathematical definition of overconfidence used in the model.
Author : Zenan Wu
Publisher :
ISBN 13 :
Total Pages : 252 pages
Book Rating : 4.:/5 (951 download)
Download or read book Essays on Contracts written by Zenan Wu and published by . This book was released on 2015 with total page 252 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays on contract theory. I investigate contracts under different economics contexts. In the first chapter, I consider a two-period model in which the success of the firm depends on the effort of a first-period manager (the incumbent) and the ability of a second-period manager. At the end of the first period, the board receives a noisy signal of the incumbent manager's ability and decides whether to retain or replace the incumbent manager. I show that the information technology the board has to assess the incumbent manager's ability is an important determinant of the optimal contract and replacement policy. The contract must balance providing incentives for the incumbent manager to exert effort and ensuring that the second-period manager is of high ability. I show that severance pay in the contract serves as a costly commitment device to induce effort. Unlike existing models, I identify conditions on the information structure under which both entrenchment and anti-entrenchment emerge in the optimal contract. In the second chapter, I use a dynamic model of life insurance with one-sided commitment and bequest-driven lapsation, as in Daily, Hendel and Lizzeri (2008) and Fang and Kung (2010), but with policyholders who may underestimate the probability of losing their bequest motive, to analyze how the life settlement market--the secondary market for life insurance--may affect consumer welfare in equilibrium. I show that life settlement may increase consumer welfare in equilibrium when (i) policyholders are sufficiently overconfident; and (ii) the intertemporal elasticity of substitution of consumption (IES) of policyholders is greater than one.
Author : Fredrik Andersson
Publisher :
ISBN 13 :
Total Pages : 136 pages
Book Rating : 4.E/5 ( download)
Download or read book Essays in the Economics of Asymmetric Information written by Fredrik Andersson and published by . This book was released on 1995 with total page 136 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Jorge Andres Zambrano Riveros
Publisher :
ISBN 13 :
Total Pages : 72 pages
Book Rating : 4.:/5 (819 download)
Download or read book Essays on Macroeconomics and Information Economics written by Jorge Andres Zambrano Riveros and published by . This book was released on 2012 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: My research interests are in the intersection of macroeconomics and information economics. I am particularly interested in the optimal design of incentives for individuals who interact over time in uncertain environments with imperfect information, and its consequences for aggregates. The dissertation is composed by three chapters that address three particular environments within this area. The first chapter studies the optimal contract in a principal-agent model where a risk-neutral principal delegates to a risk-neutral agent the decision of whether to pursue a risky project or a safe one. The return from the risky project is unknown and the agent can acquire costly unobservable information about it before taking the decision. The optimal contract suggests that the principal should only reward the agent for outcomes that are significantly better than the safe return. It is also optimal to distort the project choice in favor of the risky one as a mechanism to induce the direct revelation of the uncertain state. In a managerial context, the findings explain why options and profit sharing compensation induce better decision making from CEOs, as well as why excessive risk taking might be optimal. The second chapter explores the role of effort and human capital as mechanisms to alleviate the idiosyncratic risk faced by individuals in the presence of incomplete markets. I construct a DSGE model where effort and human capital determine the probability of being employed the next period. I show how in the stationary equilibrium individuals diversify between these mechanisms. As a result, I obtain a wealth distribution that better approximates the real one. The results shed light on the potential implication of combining policies of unemployment insurance and subsidies to education to improve the wealth distribution. The third chapter studies dynamic stochastic models where current actions are constrained by a current state and determine the distribution over future states. The purpose of this paper is to provide a general learning process that allows agents to take the optimal decision when these endogenous transitions are unknown. Our paper generalizes previous results by not imposing parametric restrictions on the unknown transition functions.
Author : Daniel Gottlieb (Ph. D.)
Publisher :
ISBN 13 :
Total Pages : 378 pages
Book Rating : 4.:/5 (436 download)
Download or read book Essays on Contract Theory and Behavioral Economics written by Daniel Gottlieb (Ph. D.) and published by . This book was released on 2009 with total page 378 pages. Available in PDF, EPUB and Kindle. Book excerpt: (cont.) The model is employed to study countersignalling (signals nonmonotonic in ability) and the GED exam. A result of the model is that countersignalling is more likely to occur in jobs that require a combination of skills that differs from the combination used in the schooling process. The model also produces testable implications consistent with evidence on the GED: (i) it signals both high cognitive and low noncognitive skills and (ii) it does not affect wages. Chapter 4, which is also based on joint work with Aloisio Araujo and Humberto Moreira, characterizes incentive-compatibility in models where types are multidimensional and the single-crossing condition may not hold. This characterization is used to obtain the optimal contracts in multidimensional screening as well as the equilibria in multidimensional signaling models. Then, I determine the implications of signaling and screening models when the single-crossing condition is violated. I show that the unique robust prediction of signaling is the monotonicity of transfers in (costly) actions. Any function from the space of types to the space of actions and an increasing transfer schedule can be rationalized as an equilibrium profile of many signaling models. Apart from the monotonicity of transfers in actions, I obtain an additional necessary and sufficient condition in the case of screening. In one-dimensional models, this condition states that the principal's profit as a function of the agent's type must grow at a higher rate under asymmetric information than under symmetric information.
Author : Ilia Krasikov
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (111 download)
Download or read book Essays on Dynamic Contracting written by Ilia Krasikov and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The thesis focuses on understanding the dynamic nature of contracts used in various economic context, specifically financial economics and industrial organization. The first chapter "A Theory of Dynamic Contracting with Financial Constraints'' draws on a large empirical literature documenting that small businesses are financially constrained, and operate at an inefficient level. In the paper, we build a theoretical model where financial constraints arise endogenously as a product of interaction between persistent agency frictions and agent's inability to raise external capital.The paper makes two general points. First, efficiency is a certainty in the long run, and it is achieved through monotone slacking of financial constraints. Second, persistence makes the path towards efficiency much more constrained in comparison to the model with the iid technology. In particular, we show that dynamic agency models with persistence predict a larger cross section of firms in the economy to be financially constrained.At a technical level, we invoke the recursive approach of \citet{aps}, using a two-dimensional vector of promised utilities as a state variable. We show that the optimal contract always stays in a strict subset of the recursive domain termed the shell, and the optimal contract is monotone within this set. We also verify that the results continue to hold in continuous time.The second chapter "Dynamic Contracts with Unequal Discounting'' looks at dynamic screening with soft financial constraints. In contrast to the first paper, the agent can raise money but at a different rate than the principal.We solve for the optimal contract and show that efficiency is not attainable with soft financial constraints. Therefore, the predictions of dynamic models of mechanism design are not robust to the assumption of equal discounting. For the large set of parameters, the optimal contract has the restart property- dynamic distortions are a function of the number of consecutive bad shocks, and once the good shock arrives the process repeats again. We also show that restricting attention to contracts which have the restart property is in general approximately optimal. The endogenous resetting aspect of restart contracts shares features of various contracts used in practice.In the third chapter "On Dynamic Pricing'', we explore dynamic price discrimination, extending a canonical model of monopolistic screening to repeated sales, where a seller uses timing of purchases as a screening instrument. The importance of time as an instrument for price discrimination has been understood since Varian [1989].In the paper, we are aiming to provide a formal analysis of pricing strategies to discriminate amongst consumers based on the timing of information arrival and/or the timing of purchase.A seller repeatedly trades with a buyer. Buyer's valuations for the trade follow a renewal process; that is, they change infrequently at random dates. For the model with two periods, We show that selling the first period good for a spot price and selling the second period good by optioning a sequence of forwards is the optimal pricing strategy. Specifically, at the outset, the seller offers an American option which can be exercised in each of the two periods. Exercising the option grants the buyer with a forward- an obligation to purchase the second period good for a specific price, and a strike price- a right to buy (or not) the good in the second period after learning his value. The buyer with a high valuation exercises the option in the first period, whereas one with a low valuation waits until the second period and then takes a call.We extend the analysis to the general continuous time renewal processes and assess the performance of price discrimination based on American options on forwards:i.optioning forwards is shown to be the deterministic optimum for the sequential screening problem- when the seller makes a sale in a single fixed period;ii.optioning forwards is shown to be the exact optimum for the repeated sales problem in the restricted class of strongly monotone contracts- when allocative distortions are monotone in a whole vector of buyer's valuations;iii.the optimum for the repeated sales problem in the unrestricted class of contracts is shown to be backloaded and a theoretical bound is provided for the fraction of optimal revenue that can be extracted by optioning forwards.Finally, the construction of dynamic pricing mechanism and bounds is ported to study repeated auctions.
Author :
Publisher :
ISBN 13 :
Total Pages : 121 pages
Book Rating : 4.:/5 (912 download)
Download or read book Essays on Contracting Problems written by and published by . This book was released on 2015 with total page 121 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis contains three chapters regarding applications of contracting problems to different topics. The first chapter studies the optimal joint design of disability insurance and unemployment insurance in an environment with moral hazard, when health status is private information, and cyclical fluctuations. I show how disability benefits and unemployment benefits vary with aggregate economic conditions in an optimal contract. I then consider a calibrated version of the full model and study the quantitative implications of both the current system and the optimal system. In the optimal system, disability benefits are designed such that the system punishes workers who stay unemployed for a long time. Finally, I consider the welfare impact of changing from the current system to the optimal one when both systems provide the same ex-ante utility to the worker. The cost savings incurred from handling the incentive problems are substantial, ranging from 45 percent to 101 percent for different workers, and the unemployment rate could be reduced by roughly 50 percent. The second chapter is about non-stationary two-sided learning in continuous time. This paper studies the multi-period contracting problem when actions of an agent are unobservable and both parties disagree on the agent's ability. The question being asked is how the actions would be affected when the amount of disagreement is another motivating factor. I derive the necessary and sufficient conditions for incentive compatibility of contracts. I then use results from stochastic analysis to transform the problem into one that can be solved numerically using Monte Carlo simulations. My results exhibit an interesting pattern: effort is no longer front-loaded as in the related work of Prat and Jovanovic (2013), and responses to incentives are significant when the terminal date approaches. The third chapter discusses anti-dumping duties and money burning. I show that with delegated decisions and private information, optimal trade agreements could consist of tariff caps as well as burning money before high tariff sanctions are used.
