This paper studies moral hazard in teams using a model where efforts are promoted via the combination of profit shares and relational contracts. The focus is on how these two forms of incentives interact. According to the degree of effort observability and the importance of future interaction, the optimal allocation of profit shares can range from a wide dispersion across players to a full concentration of shares in the hands of a single player. When shares are sufficiently concentrated, the corresponding residual claimant can also adopt the role of administering all relational contracts, therefore serving as an endogenously chosen principal.

We obtain optimal dynamic contests for environments where the designer monitors effort through coarse, binary signals—Poisson successes—and aims to elicit maximum effort, ideally in the least amount of time possible, given a fixed prize. The designer has a vast set of contests to choose from, featuring termination and prize-allocation rules together with real-time feedback for the contestants. Every effort-maximizing contest (which also maximizes total expected successes) has a history-dependent termination rule, a feedback policy that keeps agents fully apprised of their own success, and a prize-allocation rule that grants them, in expectation, a time-invariant share of the prize if they succeed. Any contest that achieves this effort in the shortest possible time must in addition be what we call second chance: once a pre-specified number of successes arrive, the contest enters a countdown phase where contestants are given one last chance to succeed.