Essays on regulatory takings compensation and formal and informal incentives in contracts

This dissertation presents two applications of principal-agent models to questions about legal institutions. The first application considers current and proposed laws that would require compensation for so-called regulatory takings of land use rights by government agencies. I develop a political economy model of regulatory takings, allowing for various types of political influence that constituents may have on regulatory decisions. I also incorporate limits on the government's powers of taxation to investigate how they affect its regulatory choices.;I find that the taxation effect can take a wide range of forms: exacerbating, mitigating, or even reversing the incentives for inefficient regulation that arise directly from unequal political influence. In the commonly analyzed case of fiscal illusion, this model presents results sharply different from the standard predictions that a zero-compensation rule will lead to over-regulation and that a full-compensation rule will lead to efficient levels of regulation. I show that the standard results hold only when government's ability to tax the value of land is extremely limited. When it can tax a high proportion of the land's value, the efficiency implications of the two compensation rules are reversed.;The second application concerns the incentives that buyers and sellers who interact repeatedly can use to frame the terms of exchange. I develop a model that allows for both formal (enforced by the legal system) and informal (enforced only by the parties' desires to maintain goodwill in the relationship) incentives. Using data from a laboratory experiment based on this model, I test several hypotheses about the nature of the interaction between the two types of incentives. Theoretical models predict that the interaction can take one of two forms, complementarity or substitution, depending on the institutional environment. The observed results suggest that the complementarity effect does appear in the predicted environment, meaning that joint use of formal and informal allows the parties to achieve more desirable outcomes than would either incentive used alone. However, the experimental observations do not support the presence of the substitution effect in the environments that theory predicts would be favorable to it. I then investigate the ways that the experimental subjects' choices, particularly with regard to punishing their partners' deviations from the promised performance, differs from the assumptions of the theoretical model. These differences may explain why the substitution effect was not observed.