Essays on the theory of contracts with applications to defense procurement and international lending.

摘要

The dissertation consists of three essays. The first examines incentives in a two-stage procurement model that incorporates adverse selection and unobservable discretionary learning. Optimal contracts are characterized for a situation in which a social planner can audit a firm's costs at specified times during the engagement and base its reimbursements on the audited cost. The optimal contract is derived using a direct revelation mechanism. Several technical issues regarding the incentive-compatibility constraint are discussed. Also, the value of a variety of strategic procurement options (such auditing, a menu of contracts, and competition) is quantified through specific examples. The optimal contract under commitment plus renegotiation is compared to the full-commitment contract.; The second essay (joint work with Kent Osband) derives optimal Department of Defense "profit policy" using a special case of the model presented in the first essay. The most important result shows that profit policy markups on follow-on contracts serve to encourage more aggressive bidding, which can reduce overall procurement cost. Several policy recommendations are drawn from the analysis.; The third essay presents a model of reputational debt in the international lending market. Because of a lack of appropriable collateral and the inability of the borrower, a sovereign country, to commit to repay the loan, the capital market may not supply funds to the borrower. The main contribution of the essay is to show, using a finite-period model incorporating incomplete information about whether the country is "honest" and an intuitive restriction on off-the-equilibrium path beliefs, that reputation effects alone usually can account for only a small amount of lending if the country loses only future loans by defaulting.