Optimal Contracting with Private Knowledge of Wealth and Ability

Tracy R. Lewis and David E. M. Sappington

Review of Economic Studies, 2001, vol. 68, issue 1, pages 21-44

Abstract: We examine the optimal design of contracts when an agent is privately informed about his wealth, his ability, and his effort supply. We find that the agent's wealth and ability act as perfect complements in determining the power of the incentive scheme under which he operates. Only if his ability and his wealth both increase can an agent be assured of operating under a more powerful scheme. Consequently, severe under-utilization of wealth and ability arise in equilibrium. Copyright 2001 by The Review of Economic Studies Limited

Date: 2001
View citations in EconPapers

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:bla:restud:v:68:y:2001:i:1:p:21-44

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0034-6527

Access Statistics for this article

Review of Economic Studies is edited by Andrea Prat, Bruno Biais, Kjetil Storesletten and Enrique Sentana

More articles in Review of Economic Studies from Blackwell Publishing
Series data maintained by Christopher F. Baum ().