Quantitative approaches to the design of incentives in business firms are surveyed by drawing on writings from management science, finance, decision analysis, and mathematical economics. Two general incentive design situations are considered: How should incentives for the company president be...

This paper shows how to value options with stochastic lives, i.e. options which may be cancelled but where the underlying stocks retain their value. The executive stock option, which is cancelled if the executive takes a job in another firm, is a typical example. The paper also contains a...