Essays in Contract Theory

Abstract

This dissertation comprises three essays in contract theory on the regulation of risky projects and the optimal organizational form of sequential projects. The first chapter analyzes how a legislature delegates authority to a regulator with expert information and a pro-firm bias to oversee firms that undertake socially risky activities, and shows that the legislature optimally grants more discretion when the regulator is less motivated and has a weaker bias. The second chapter studies the organization of a sequential project with design and construction, in which an owner chooses between unbundling and bundling the tasks; with moral hazard in design effort and private information about construction cost, bundling links the stages by allowing design incentives to depend on the reported cost type. This linkage is valuable when it is optimal to induce effort only from the efficient type, because construction-stage information rents can then be used to motivate design effort, so that bundling can dominate unbundling. The third chapter reviews the theoretical literature on public–private partnerships, summarizing how contractual and political factors influence their efficiency.