In this paper we study delegated portfolio management when the manager's ability to short-sell is restricted. Contrary to previous results, we show that under moral hazard, linear performance-adjusted contracts do provide portfolio managers with incentives to gather information. The risk-averse...

Illusory correlation refers to the use of information in decisions that is uncorrelated with the relevant criterion. We document illusory correlation in CEO compensation decisions by demonstrating that information, that is uncorrelated with corporate performance, is related to CEO compensation....

We study relative performance evaluation in executive compensation when executives have private information about their ability. We assume that the joint distribution of an individual firm’s profit and market movements depends on the ability of the executive that runs the firm. In the...

This chapter, originally written as a consequence of the terrorist attacks of September 11, 2001, provides an elementary, everyday introduction to the concepts of risk and insurance. Conceptually, risk has two dimensions: a potential loss, and the chance of that loss being realized. People can,...

This paper extends previous resuls on optimal insurance trading in the presence of a stock market that allows continuous asset trading and substantial personal heterogeneity, and applies those results in a context of asymmetric information with references to the role of genetic testing in...

Dubey and Geanakoplos [2002] have developed a theory of competitive pooling, which incorporates adverse selection and signaling into general equilibrium. By recasting the Rothschild-Stiglitz model of insurance in this framework, they find that a separating equilibrium always exists and is...

We develop a setting with weak intellectual property rights, where firms' boundaries, location and knowledge spillovers are endogenous. We have two main results. The first one is that, if communication costs increase with distance, entrepreneurs concerned about information leakage have a benefit...

In this paper we consider the equilibrium effects of an institutional investor whose performance is benchmarked to an index. In a partial equilibrium setting, the objective of the institutional investor is modeled as the maximization of expected utility (an increasing and concave function, in...

Executive compensation packages are often valued in an inconsistent manner: while employee stock options (ESOs) are typically valued ex-ante, cash bonuses are valued ex-post. This renders the existing valuation models of employee compensation packages theoretically unsatisfactory and,...

Does the labor market place wage premia on jobs that involve physical strain, job, insecurity or bad regulation of hours? This paper derives bounds on the monetary returns to these job disamenities in the West German labor market. We show that in a market with dispersion in both job...