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3 The Optimal Contract The question examined in this chapter is: how can a given level of government services be produced at the least cost? (The question of how this level of government services should be determined is outside the scope of the present study.) We shall derive the form of the optimal government/firm contract theoretically, taking into account four effects: the bidding competition effect, the risk-sharing effect, the moral-haz.ard effect, and the cost-padding effecL Our analysis will consider three types of contract thefvced-price contract

The B.E. Journal of Economic Analysis & Policy Contributions Volume 7, Issue 1 2007 Article 40 Optimal Contracts for Health Services in the Presence of Waiting Times andAsymmetric Information Luigi Siciliani∗ ∗University of York,UK, RecommendedCitation Luigi Siciliani (2007) “Optimal Contracts for Health Services in the Presence of Waiting Times and Asymmetric Information,” The B.E. Journal of Economic Analysis & Policy: Vol. 7: Iss. 1 (Contributions), Article 40. Optimal Contracts for Health Services in the Presence of Waiting Times and

better off relying on the social norm, i.e. there exists ɛ > 0 such that for , the optimal contract will provide incentives α c and invoke the social norm. The intuition for this result is quite simple. Assume that ϕ 0 is only slightly smaller than . If the agent continued to feel disutility from breaking his promise irrespective of α , the optimal contract would have specified only α slightly below α c . Therefore, specifying α = α c and still relying on the social norm results in the loss in profits of the order On the other hand, not invoking the

Hypothesis in Contractual Settings: Evidence from Soccer Oriol Carbonell-Nicolau and Diego Comin Abstract This paper designs and implements an empirical test to discern whether the parties to a contract are able to commit not to renegotiate their agreement. We study optimal contracts with and without commitment and derive an exclusion restriction that is useful to identify the relevant commitment scenario. The empirical analysis takes advantage of a data set on Spanish soccer player contracts. Our test rejects the commitment hypothesis. We argue that our conclusions should


This paper describes how plaintiff should compensate lawyers, who choose unobservable effort, when litigation may proceed from the trial to the appeals court. We find that, when it is very likely that the defendant will appeal, transfers made to the lawyer only after an appeals court’s ruling are key instruments in incentivizing both trial and appeal court effort. Indeed, the lawyer may not receive any transfer after the trial court’s ruling. In contrast, when reaching the appeals stage is unlikely, a favorable trial court ruling triggers a positive transfer to the lawyer and first-best appeals effort. In our setup, the lawyer may receive a lower transfer after winning in both the trial and the appeals court as compared to the scenario in which the first-instance court ruled against the plaintiff and the appeals court reversed that ruling.

explained by the presence of contracting costs. We study optimal contracts in a specific class of credibility models: relationships in which the surplus comes solely from screening. We show that the optimal contract is to reproduce the Perfect Bayesian Equilibrium of the game without commitment. In this sense, sequential rational- ity constraints do not bind. Therefore, we provide an alternative explanation for why a specific class of long-term relationships may often not be contracted upon. KEYWORDS: commitment, reputation ∗I am grateful to Dirk Bergemann, Stephen Morris

Ability and Motivation Oxford Economic Papers 68 2 627 650 Bryson, A., R. Freeman, C. Lucifora, M. Pellizzari, and V. Perotin. 2012. “Paying for Performance: Incentive Pay Schemes and Employees’ Financial Participation”. Tech. rep., Centre for Economic Performance, LSE. Bryson A. Freeman R. Lucifora C. Pellizzari M. Perotin V. 2012 Tech. rep. Centre for Economic Performance, LSE Paying for Performance: Incentive Pay Schemes and Employees’ Financial Participation Cassar, L. 2016. “Optimal Contracting with Endogenous Project Mission”. Mimeo. Cassar L. 2016 Optimal

. The allocation is stationary after one period, featuring constant consumption, wages, wealth and utility over the life of the match. Second, I show that when agents are initially wealthy, the optimal contract sets wages equal to productivity in every period. In this case, consumption and wealth drop through time until a constant level of assets is reached. This level defines the buffer stock of savings in the model. As is well known, under limited commitment the optimal allocation needs to satisfy two participation constraints: Both the firm and the worker must be

screening model which is still rich enough to exhibit all the salient features. Al- though our results are broadly consistent with those of Courty and Li (2000), there are some notable differences. Unlike Courty and Li (2000), we allow for the case that the support of the second observation depends on the first. This feature leads to the qualitative difference that optimal contracts may in- volve lying off the equilibrium path. Off–the–equilibrium–path–lying occurs whenever the degree of ex post private information is small. In this case, ex post information does not

− r 2 ( 1 − w 2 ) ] − c ( e 2 ) − w 2 } ( I C ) 1 [ p ( e 1 ) r 1 − 1 ] ( 1 − w 1 ) + p ( e 1 ) [ p ( e 2 ) r 2 − 1 ] ( 1 − w 2 ) = 0 ( P C ) w 2 = x [ R − r 1 ( 1 − w 1 ) ] ( W M ) 0 ≤ R − r 1 ( 1 − w 1 ) ≤ R ( L L ) 1 0 ≤ R − r 2 ( 1 − w 2 ) ≤ R . ( L L ) 2 The Optimal Contract To solve the problem I use the following notations: $\alpha _{1}=R-r_{1}(1-w_{1})$ α 1 = R − r 1 ( 1 − w 1 ) and $\alpha _{2}=R-r_{2}(1-w_{2})$ α 2 = R − r 2 ( 1 − w 2 ) i.e. $\alpha _{1},\alpha _{2}$ α 1 , α 2 represent the entrepreneur’s payoffs in period one and two, respectively