This paper characterizes optimal pay-performance sensitivities of compensation contracts for managers who have private information about their skills, and those skills affect their outside employment opportunities. The model presumes that the rate at which a manager's opportunity wage increases...

We study a setting wherein a divisional manager undertakes personally costly effort to improve the profitability of an investment project. The manager's choice of innovation effort is subject to a holdup problem because of the ex post opportunism on the part of headquarters. We analyze and...

This survey advocates the use of dynamic models to examine the incentive properties of commonly used accounting performance metrics. Drawing from recent work in this emerging field, the survey illustrates how one can use tractable multiperiod models to shed light on questions of fundamental...

Abstract The internal organization of large firms as well as procurement and regulation contexts frequently involve a hierarchical nexus of contracts, with substantial delegation of decision making across layers. Such hierarchical delegation of decision making creates problems of aligning...