We posit that screening IPOs requires specialized labor which, in the short run, is in fixed supply.  Hence, a sudden increase in demand for IPO financing increases the compensation of IPO screening labor.  Increased compensation results in reduced screening which encourages sub-marginal firms...

We model corporate governance in a world with competitive securities markets as well as markets for corporate assets.  We show that varying the liquidity and opacity of corporate assets, the vitality of the market for corporate control, and the costs of enforcing shareholder rights to cash...

We model long-run firm performance, management compensation, and corporate governance in a dynamic, nonstationary world.  We show that managerial compensation and governance policies, which, in a single-period context, can best be rationalized by self-serving managerial influence over board...

This chapter reviews the literature on the theory of relational incentive contracts.  It motivates the discussion by the classic applications of relational contracts to the GM-Fisher Body relationship and the relationships between Japanese automobile manufacturers and their subcontractors.  It...

This paper investigates relational incentive contracts with a continuum of privately observedagent types that are persistent over time. For a sufficiently productive relationship,a pooling contract exists in which all agent types continuing the relationshipchoose the same action. Necessary and...

We show that introducing an external capital market with information asymmetry into a product market model reduces opportunistic substitution of sub-standard goods and encourages producers to concentrate on long-run reputation building.  We test this result with a laboratory experiment.  We...

This paper uses a vertical relational contract between two firms to explore the implications of trade credit when the ability to repay is not observed by the supplier.  Trade credit limits the supplier's possibilities to punish the cashless downstream firms and termination may be used in...

This paper explores the implications of specific training for relational contracts.  A standard result for sustaining a relational contract is that the parties must jointly receive a surplus over what they can get by separating.  This has been interpreted as employees with relational contracts...

This paper extends the relational contract model in Levin (2003) with shocks to theagent’s cost of effort (agent’s type) to shocks to the principal’s valuation of the agent’seffort (principal’s type). When optimal effort is fully pooled across agent types...

This paper considers why organizations use promotions, rather than just monetary bonuses, to motivate employees even though this may conflict with efficient assignment of employees to jobs. When performance is unverifiable, use of promotion reduces the incentive for managers to be affected by...