Contracting with wealth-constrained agents

We examine how a project owner optimally selects a project operator and mot ivates him to deliver an essential noncontractible input (e.g., effort) whe n potential operators are privately informed about their limited wealth. Tr uthful revelation of wealth is induced by promising a higher probability of operation and, if necessary, a greater share of realized profit the larger the nonrefundable bond that a potential operator posts. The project owner benefits when total wealth is widely dispersed among potential operators. U nder plausible conditions, limited knowledge of wealth is not constraining for the project owner.