Existence and Characterization of Optimal Employment Contracts on a Continuous State Space

This paper characterizes the class of incentive compatible contracts and establishes existence and absolute continuity of an optimal wage-employment contract in an environment where private information can take on a continuum of values. Unlike previous work on optimal contracting, our results use neither an assumption that utility is additively separable in income and leisure nor prior assumptions of continuity or differentiability of the contract. Journal of Economic Literature Classification Numbers: D82, C61, J41.