The optimal fiduciary contracts for urban development

This paper is concerned with fiduciary contracts for urban development between a principal (public agent) and an agent (private sector). In fiduciary contracts for urban development, agents typically know more about their tasks than their principals do, though principals may know more about what they want to be accomplished. One cannot expect any agent to function as well as it would if all information were costless or if the incentives of both principals and agents could be costlessly aligned. Thus, the basic element of fiduciary contracts is to design incentive schemes that allow the sharing of risk and simultaneously preserve incentives. This paper presents an economic mechanism for inducing the agents to reveal their true private information. The proposed mechanism is capable of designing the optimal incentive schemes that overcome the principals' inability to observe the agents' behavior under a broad class of fiduciary contract problems.