Optimal Share Contracts under Theft

Temptation for tenants to under-report output levels under share contracts is undoubtedly high. There is evidence that theft of product occurs and that this affects the design of share contracts. In this case, the optimal output share is chosen to not only induce effort but also to reduce theft of product, while meeting the landlord's limited liability obligation. The tenant's share thus rises with his desire and ability to steal. The optimal contract allows both residual inefficiency in the provision of effort and residual cheating. This contract is also modified by process utility in cheating, ability of the landlord to supervise, risk of revenge with abusive surveillance, and switch to products less prone to theft.


Issue Date:
2004
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/25119
Total Pages:
19
JEL Codes:
D82; Q15; O17
Series Statement:
CUDARE Working Paper 980




 Record created 2017-04-01, last modified 2017-04-04

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