Organizations fail due to incentive problems (agents do not want to act in the organization's interests) and bounded rationality problems (agents do not have the necessary information to do so). This survey uses recent advances in organizational economics to illuminate organizational failures...

We consider the problem of an employer who has to choose whether to reemploy agents with a positive track record or agents who were unsuccessful. While previously successful managers are likely to be of high ability, they have also accumulated wealth and will be harder to motivate in the future....

We consider a dismissal tournament where the loser gets fired. Although the firm takes possible selection failures into account when choosing the optimal tournament design, the selection efficiency of a dismissal tournament is often rather low. This is because low-ability workers, possessing...

We analyze optimal contracts in a hierarchy consisting of a principal, a supervisor and an agent. The supervisor is either neutral or altruistic towards the agent, but his preferences are private information. In a model with two supervisor types, we find that the optimal contract may be very...

We solve for the optimal contract when agents are reciprocal, demonstrating that generous compensation can substitute for performance-based pay. Our results suggest several factors that make firms more likely to use reciprocal incentives. Reciprocity is most powerful when output is a poor signal...

We analyze the interaction of explicit and implicit contracts in a model with selfish and fair principals. Fair principals are willing to honor implicit agreements, selfish principals are not. We investigate a separating equilibrium in which principals reveal their type through the contract...

This paper considers what kind of managerial compensation contract is optimal for mitigating the moral hazard decision regarding investment timing. We examine the situation where the personal objectives of managers do not align with those of shareholders and where there is the possibility of...

When an agent is offered performance related pay, the incentive effect is not only determined by the shape of the incentive contract, but also by the probability of contract enforcement. We show that weaker enforcement may reduce the agent's effort, but lead to higher-powered incentive...

I study the trade-off between private and verifiable interim performance evaluations under uncertainty. More uncertainty leads to higher agency costs if the interim evaluation is public and verifiable but lower agency costs if the interim evaluation is private and unverifiable.

We study optimal incentive provision for “knowledge workers”, a crucial resource for many organizations. We augment a standard moral-hazard framework to reflect two key patterns: First, retention is a challenge because workers are free to leave; thereby harming their employer. Second, the...