We examine the relationship between the optimal incentive contract and the firm’s decision to fire a manager for poor performance. We first derive some theoretical results using a simple principal-agent model, and then examine the empirical evidence on the incidence of forced turnover among...

External agents are frequently characterized as necessary for efficiency in team production settings. At the same time, these agents must be constrained from opportunistically exercising their enforcement capabilities. I argue that collective action costs and formal institutions (e.g., golden...

We show that, in repeated common interest games without discounting, strong `perturbation implies efficiency' results require that the perturbations must include strategies which are `draconian' in the sense that they are prepared to punish to the maximum extent possible. Moreover, there is a...

The paper uses micro-level data obtained from surveying informal and formal small textile producers in Bolivia to estimate the economic returns to social capital. Social capital is defined as being linked to other individuals. The paper studies forms of social links that vary with respect to...

The present paper shows why information asymmetry and bivariate stochastic demand and spot price induce different behaviours and economic inefficiency in a carrier – shipper relationship. An example is offered of a single period, single echelon, shipper-carrier transport model where demand...

We offer the first direct evidence of an implicit contract in a goods market. The evidence we offer comes from the market for Coca-Cola. We demonstrate that the Coca-Cola Company left a substantial amount of written evidence of its implicit contract with its consumers—a very explicit form of...

Many emerging or transition economies lack institutional arrangements (like ISO certification) to credibly signal product quality. The absence of such institutions leads to low levels of market activity with poor quality products on sale. In this paper, we use a dynamic framework with asymmetric...

With the enlargement of the European Union, many Central and Eastern European (CEE) manufacturing companies have greater opportunity for internationalizing their activities. Although it is generally held that SMEs have the flexibility and ability to adapt to their environment more quickly than...

We embed the Varian (1980) model in a broader setting that considers how switcher/loyal customer segments are determined. Generally, customer acquisition is deterministic while pricing is randomized. The equilibrium outcome depends on the timing of customer acquisition relative to pricing. If...

Agency costs are a cost of production, and firms that do a better job of minimizing these costs should exhibit better performance. This paper tests this hypothesis by calculating the performance elasticity of average employee hourly compensation for U.S. manufacturing firms. This elasticity...