Optimal Contracting with Wealth-Constrained Operators of Unknown Ability

Publication Year:
Usage 143
Downloads 78
Abstract Views 65
Repository URL:
Dai, Chifeng
article description
This paper examines how a project owner optimally selects a project operator and motivates him to deliver an unobservable effort when potential operators are wealth-constrained. It shows that either a pooling or a separating contract can arise in equilibrium. In a separating contract, the more capable potential operator is either selected more often but awarded a smaller share of profit, or selected less often but awarded a larger share of profit.