This paper critically examines the hypothesis that layoffs are involuntary in implicit labour contracts because they are used by employers to punish inferior worker performance. In repeated moral hazard situations, workers typically bear risk associated with whether they are chosen to be laid off even though the latter is uninformative about previous effort choices and wages are performance-contingent. However the hypothesis is unsatisfactory as optimal contracts involve involuntary retentions rather than involuntary layoffs in a wide variety of circumstances.

The Grossman-Hart principal-agent model of moral hazard is extended to the multiple agent case to explore the use of relative performance in optimal incentive contracting. Under the assumption that the principal chooses incentive schemes to implement agent actions as Nash equilibria, necessary and sufficient conditions are derived for the optimality of independent contracts, of rank-order tournaments, and for attainability of the first-best. In this context the relation of the principal's welfare to the correlation between the underlying randomness in outputs of different agents is also investigated. Finally, some problems with the Nash equilibrium implementation assumption are discussed.

Learning-by-doing and increasing returns are often perceived to have similar implications for market structure and conduct. We analyse this in the context of an infinite-horizon price-setting game. Learning is shown to not reduce the viability of market-sharing collusion between a given number of firms, whereas intra-period increasing returns invariably does. We subsequently develop a model where the number of active firms is determined endogenously, under the assumption that the post-entry game is collusive. In this model, learning has no effect on concentration, while scale economies increase concentration.

Consider the problem of Bayesian implementation, i.e., of constructing mechanisms with the property that all Bayesian equilibrium outcomes agree with a given choice rule. We show that a general procedure is to start with an incentive-compatible revelation mechanism, and then augment agents' message spaces in order to eliminate undesired equilibria. Specifically, we present an Augmented Revelation Principle, which states that if there exists any mechanism that implements a given choice rule, then an augmented revelation mechanism will also implement it. This principle enables us to obtain necessary conditions for implementation. For a large class of environments these conditions are also sufficient.

Alternative wage structures under conditions of moral hazard are analyzed from a social-welfare standpoint. It is argued that ex post equity judgements in an uncertainty context should incorporate a preference for "positive correlation" of utilities of different individuals. In the design of compensation schemes, this may give rise to a conflict between ex post equity objectives and the need to provide effort incentives: relative performance clauses in compensation schemes that are useful for providing incentives are undesirable from an ex post equity standpoint.