This dissertation consists of three essays on dynamic contracts. Chapter One studies a dynamic principal-agent model in which the agent continuously works on a project which may yield a success. The principal cannot observe the success, but she observes imperfect signals over time after the agent stops working. The principal is more patient than the agent and both are risk neutral. In the optimal contract where the agent observes the success, the agent is induced to exert full effort until success and report it truthfully. The optimal payment scheme features a combination of wage and deferred bonus. When the agent does not observe the success, the optimal contract features a stochastic deadline and a deferred bonus payment. Chapter Two studies a discrete time principal-agent model where the agent's effort and ability are both private information. The wage is exogenously fixed and the principal designs a firing policy to incentivize the agent to work. In each period, the agent works on a project with binary outcomes. The high type has a higher probability of getting a good outcome than the low type conditional on high effort. The outcome in each period is publicly observed. In the optimal contract, the principal hires the high type for sure and hires the low type with some probability. Conditional on being hired, the high type faces a higher standard of performance. Chapter Three studies a dynamic model of delegated decision making with adverse selection and imperfect monitoring. In each period, a principal may delegate to a biased agent who has better information. The quality of the agent's information depends on his ability. In the optimal mechanism where the agent's ability is publicly observable, the principal delegates to the agent at the beginning of their relationship and the agent behaves in the principal's interest. Depending on the history, the principal either commits to delegating forever or stops delegating eventually. When the agent's ability is private information, the optimal mechanism features pooling at the top. The principal offers the same mechanism to the agent if his ability is known to be above a cutoff.

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This paper presents a novel approach for designing and optimizing maintenance service contracts through the application of mechanism design theory. When offering a contract to its customer, the maintenance service provider seeks to specify contract terms - such as price, service features and incentives - that maximize the provider's profit, satisfy customer needs, allocate risks effectively and mitigate moral hazards. Optimal contract design has to account for asymmetric information and uncertainties associated with customer characteristics and behaviors. We illustrate our mechanism design approach by applying it to the contract design challenge of a gas turbine manufacturer, which also provides maintenance services for its aircraft engines. In our solution approach, we compute an optimal set of contracts. The entire set is presented to the customer and is designed such that the customer will accept one of the contract alternatives without negotiations. In addition to eliminating the costs and delays associated with negotiations, this approach also reveals the customer's private information to the service provider, which the provider can use to its benefit in maintenance management and future contract renewals. Furthermore, we design and incorporate win-win incentive mechanisms into the contracts, which reward the customer for actions that reduces maintenance costs. We present a deterministic and a stochastic mechanism design model, the latter accounting for uncertainties associated with customer actions, engine performance, and maintenance costs during the contract execution phase. / Master of Science

Yes / This paper aims to capture the perception of banking services providers on how to restore their customers’ trust in the UK banking industry. Twenty frontline employees (FLEs) who have customer-facing responsibilities are interviewed and a thematic analysis of the interview transcripts is undertaken. Through the emergence of three different major themes and a number of sub-themes, we have presented our findings in the form of a trust restoration model. Interviewees have reported three major themes as an action framework to restore their customers’ trust. Firstly, banks are implementing enhanced transparency in their operations, by appropriately disclosing the key features of their lending and other banking activities. Secondly, they are implementing policies and procedures that can help strengthen their relationship banking, such as improving employee and customer engagement activities for supporting small businesses and the community. Thirdly, they are promoting operational efficiency by adequately investing in information technology infrastructure. However, some financial service practices identified by the interviewees, for example, the deliberate sale of financial products that are unsuitable for their customers or too complex to understand, still continues. Ultimately, this ‘sale before service’ tactic is incompatible with the industry claims of compliance with the new financial regulations.

Studiens syfte: Denna studie har som syfte att undersöka hur svenska venture capital aktörer minimerar asymmetrisk information i samarbetsprocessen med entreprenören. Metod: Studien är av fallstudiedesign med kvalitativ ansats där semistrukturerade intervjuer samt enkät med slutna frågor har använts för att samla in data. Empiri: Det empiriska materialet visar hur tre svenska venture capital aktörer noggrant och effektivt väljer investeringsobjekt och sedan arbetar aktivt för att dessa bolag ska bli så bra som möjligt. Slutsats: Studien visar att svenska venture capital aktörer använder sig av en kombination av olika verktyg och att bygga förtroende mellan de olika parterna för att minimera risken med asymmetrisk information. / Purpose: The aim of this study is to examine how the Swedish venture capital operators minimize the asymmetric information that may occur during an investment process. Method: This study has a case study design using a qualitative approach in which semi- structured interviews and a questionnaire with closed-end questions were used to collect data. Research: The empirical data shows how Swedish Venture Capital operators accurately and efficiently selects investment targets and then actively work for the companies they invest in. Conclusion: The main result of this investigation is that Swedish venture capital operators use a combination of different tools and trust to minimize the risk of asymmetric information.

Under senare år har antalet privata aktörer verksamma inom segmentet för samhällsfastigheter, en typ av fastighet där samhällsservice bedrivs, mångdubblats. Cirka 85 procent av dessa fastigheter bedöms finnas i kommunal, regional eller statlig ägo, men allt större andel förvärvas av privata aktörer. Med bakgrund av detta ämnade denna studie att identifiera de bakomliggande drivkrafterna för utvecklingen av marknadssegmentet för samhällsfastigheter och främst hur kommuner förhåller sig till det privata investeringsintresset. Studien baserades på såväl kvantitativa som kvalitativa datainsamlingar där representanter från offentlig och privat sektor intervjuades och data insamlades. Dessa analyserades och jämfördes mot varandra för att nå ett tillfredsställande resultat. Resultatet analyserades dels genom teorier som moral hazard och asymmetrisk information, men även genom tidigare forskning på området. Detta för att belysa de svårigheter som uppkommer mellan kontraktsparter i sådana transaktioner och vad som får kommuner att vara återhållsamma i sina beslut om avyttringar Resultatet visade att det primärt är demografiska utmaningar och investeringsbehov och sekundärt ekonomiska problem som får kommuner att avyttra samhällsfastigheter, och att politiken spelar en mindre roll. Fastighetsbolagen anser att kommuner är en säker hyresgäst och ser främst till demografin i sina investeringsstrategier. För att undvika moral hazard-problem fann studien att tydligare avtal krävs mellan parterna och ett ökat ansvarstagande av bolagen. Studien fann att ett ökat privat inflytande i segmentet för samhällsfastigheter är att vänta. / In recent years, the number of private companies active in the public property sector has increased manifold. Public properties are those in which some form of public service is practiced. Some 85 percent of these are estimated to be owned by municipalities, regional authorities and the central government, but the share owned by private real estate companies is increasing. Hence, the aim of this study was to identify driving forces behind the market development of the public property segment, and primarily how municipalities regard the private companies’ interest in buying their properties. The method chosen for this study was both quantitative as well as qualitative, where representatives from both public and private sectors was interviewed and historical data were collected. In analyzing our results, comparisons to previous research were made and theories such as moral hazard and asymmetric information applied. This method was used to accentuate problems that might arise in transactions between public and private interests and how these cause municipalities to be wary of selling real estate. The results showed that changes in demographics and the need for investments in public property are primary causes of selling real estate, whereas municipalities’ financial performances are secondary. Ideology appeared to be a less impacting factor than the aforementioned two. Private companies consider municipalities risk-free tenants and view demographics as the key factor in their investment strategy. To prevent moral hazard problems, the study found that transparent and flexible lease contracts are needed, as well as increased responsibility-taking by the companies. The study showed that an increase in private sector influence over the public property sector is to be expected.

Jensen和Meckling(1976)認為只要管理者不是握有百分之百的股權時，公司的股東和 管理者之間必然會存在有某種潛在的衝突。因為當企業只是單一的個人所擁有並經營 時，那么他一定盡力去提高他個人的福利。當但這位管理者並非百分之百擁有所有權 時，則某種潛在的衝突將會因而產生，管理者不再會像以前那麼努力，因為他所創造 的財富，將和別人來分享；且同時管理者可能會做過多的享受，因為享受的成本，將 會由外界的投資者共同負擔。因此，外界的投資人和管理者，此二者之間便存在有衝 突的危險。而此種因為代理人會有不努力的現象，而主理人又無法直接觀察代理人不 努力的情形，稱之為む道德危險(moral hazard)め。 投資人為了防止管理者不努力的現象，可能會透過負債的使用來降低道德危險的情形 。意即，管理者的努力情形雖然無法觀察，但可利用企業期末的產出來判斷，當期末 產出較多時，可推論投資人有努力投資，則相對於投資人可以觀察管理者努力的情形 而言，負債的評價較低，以便對管理者鼓勵使其獲得產出的較多部分，進而影響企業 的資本結構；反之當企期末產出較少時，其推論亦同。 而本文企圖將上述的現象，透過數理模式的建立，來討論存在有道德危險時，企業的 資本結構將會受到何種影響。

O custo elevado da crise financeira do subprime, que assolou a economia norte-americana nos últimos anos e provocou a intervenção estatal no salvamento de diversas Instituições Financeiras consideradas Grandes Demais para Falir, abriu espaço para o crescimento dos títulos Condicionalmente Conversíveis (CoCos). Trata-se de títulos que injetam capital automaticamente no balanço do banco sempre que o nível de capital fique abaixo de determinado parâmetro pré-estabelecido – chamado de gatilho – pela conversão da dívida em capital e com termos de conversão já estabelecidos em contrato. Essa é uma inovação do mercado que entrou no arcabouço de Basileia III e poderá exercer um importante papel na prevenção ao risco moral, uma vez que tais instrumentos permitem a divisão dos riscos entre o banco emissor do título e o investidor, retirando eventuais encargos dos recursos públicos de ter que salvar grandes empresas insolventes. Espera-se, assim, reduzir ou até mesmo eliminar o problema da existência de companhias Grandes Demais para Falir. Mas o mercado de CoCos, que são títulos híbridos, terá de se tornar mais líquido – de forma a atrair mais investidores – e buscar um caminho em torno da padronização nas emissões ao eliminar, principalmente, incertezas relacionadas ao nível do gatilho e aos termos de conversão. / The high cost of the 2007-08 subprime financial crisis that led to state intervention with the rescue of several financial institutions considered too big to fail made room for the growth of the contingent convertible bonds (CoCos). These securities automatically inject capital in the bank’s balance sheet when its capital level is below certain pre-set ratio (trigger), by converting debt into equity. Both trigger and conversion terms are established by contracts. This is a market innovation that has entered the Basel III framework and can play an important role in preventing moral hazard, since such instruments allow risk sharing between the issuing bank and CoCos investors, preventing government bailouts. CoCos are expected to reduce or even eliminate the existence of too big to fail companies. But these hybrids must provide more liquid markets – in order to attract more investors – and seek contracts standardization by eliminating mainly uncertainties related to the trigger level and conversion terms.

This dissertation analyzes the contracting problem between a firm and the research employees in its R&D department. The dissertation consists of two chapters. The first chapter addresses a simplified problem in which the R&D unit has only one agent. The second chapter studies a scenario in which the R&D unit consists of a team. In the first chapter, I look at problem in which a principal hires an agent to do a multi-stage R&D project. The transition from one stage to the next is modeled by a Poisson-type process, whose arrival rate depends on the agents choice of effort. I assume that effort choice is binary and unobservable by the principal. To overcome the repeated moral-hazard problem, the principal offers the agent a long-term contract which specifies a flow of payments based on his observation of the outcome of the project. The optimal contract combines rewards and punishments: the payment to the agent decrease over time in case of failure and jumps up to a higher level after each success. I also show that the optimal contract can be implemented by using a risky security that has some of the features of the stocks of these firms, thereby providing a theoretical justification for the wide-spread use of stock-based compensation in firms that rely on R&D. In the second chapter, I look at a scenario in which the R&D unit consists of a team, which I assume, for simplicity, comprises two risk-averse agents. Now, the Poisson arrival rate is jointly determined by the actions of both agents with the action of each remaining unobservable by both the principal and the other agent. I assume that when success in a phase occurs the principal can identify the agent who was responsible for it. In this model, incentive compatibility means that each agent is willing to exert effort conditional on his coworker putting in effort, and thus exerting effort continuously is a Nash-equilibrium strategy played by the agents. In this multiagent problem, each agents payment depends not only on his own performance, but is affected by the other agents performance as well. Similar to the single-agent case, an agent is rewarded when he succeeds, and his payment decreases over time when both agents fail. Regarding how an agents payment relates to his coworkers performance, I find that the optimal incentive regime is a function of the way in which agents efforts interact with one another: relative-performance evaluation is used when their efforts are substitutes whereas joint-performance evaluation is used when their efforts are complements. This result sheds new light on the notion of optimal incentive regimes, an issue that has been widely discussed in multi-agent incentive problems.