The analysis obtains a complete characterization of the optimal agency contract with moral hazard, risk neutrality, and limited liability. We introduce a “critical ratio” that indicates the returns to providing the agent with incentives for effort in each random state. The form of the contract is debt (a capped bonus) when the critical ratio is increasing (decreasing) in the state. An increasing critical ratio in the state‐space setting corresponds to the hazard rate order for the reduced‐form distribution of output, which we term the “decreasing hazard rate in effort property” (DHREP). The critical ratio also yields insights into agency with adverse selection.

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Abstract. We present a model of standard setting and patent pool formation. We study the effects of alternative standard-setting and pool-formation rules on technology choice, prices and welfare. We find three main results. First, we show that allowing patent pools may reduce welfare when standards are negotiated and patent pools need to be ex-post incentive compatible. Second, we show that it is not possible to rank in welfare terms combinations of standardsetting and pool-formation rules when patent pools need to be ex-post incentive compatible. Third, we show that allowing firms to sign ex-ante agreements regarding pool participation dominates in terms of welfare any other policy rule. Our proposal does not require the Standard Setting Organization to have information on patent ownership, the terms of license agreements, or the value added of patents.

Organizations devoted to the production of goods and services, such as guilds, partnerships and modern corporations, have dominated the economic landscape in our species' history. We develop an explanation for their evolution drawing from cultural evolution theory. A basic tenet of this theory is that social learning, under certain conditions, allows for the diffusion of innovations in society, and therefore, the accumulation of culture. Our model shows that these organizations provide such conditions by possessing two characteristics, both prevalent in real world organizations: exclusivity of membership and more effective social learning within their boundaries. The model and its extensions parsimoniously explains the cooperative nature of the social learning advantage, organizational specialization, organizational rigidity and the locus of innovation. We find supportive evidence for our predictions using a sample of pre-modern societies drawn from the Ethnographic Atlas. Understanding the nature of these organizations informs the debate about their role in society.

We develop a model and derive behavioral predictions for a multiproduct sales force subject to goals set based on past performance. We test these predictions using a field experiment in which 53 salespersons from a Chilean beverage company face exogenous variation in monthly sales goals. Confirming our predictions we found that 1) Absent strategic considerations-no goal ratcheting-, salespersons increase (decrease) sales in the product category for which the return to effort increases (decreases), 2) Including strategic considerations behavior reverses: salespersons that expect high goal ratcheting decrease (increase) sales in the category for which the return to effort increases (decreases), 3) Sales did not change for the average salespersons, reflecting heterogeneity in the expectations of goal ratcheting rather than unresponsiveness to incentives. Our study points at the importance of the dynamics of incentive design, in particular, the importance of understanding the dynamics of goal setting in firms.