Contracting with wealth-constrained agents

Journal Article (Journal Article)

We examine how a project owner optimally selects a project operator and motivates him to deliver an essential noncontractible input (e.g., effort) when potential operators are privately informed about their limited wealth. Truthful revelation of wealth is induced by promising a higher probability of operation and, if necessary, a greater share of realized profit the larger the nonrefundable bond that a potential operator posts. The project owner benefits when total wealth is widely dispersed among potential operators. Under plausible conditions, limited knowledge of wealth is not constraining for the project owner.

Full Text

Duke Authors

Cited Authors

  • Lewis, TR; Sappington, DEM

Published Date

  • January 1, 2000

Published In

Volume / Issue

  • 41 / 3

Start / End Page

  • 743 - 767

International Standard Serial Number (ISSN)

  • 0020-6598

Digital Object Identifier (DOI)

  • 10.1111/1468-2354.00082

Citation Source

  • Scopus