Venture capitalists enjoy incentive-laden compensation schemes where they are paid a fixed amount (management fees) plus a share of profit (success fees). This scheme is of course intended to provide venture capitalists with strong incentives under the heavy information asymmetry (Sahlman, 1982,...

In a typical corporate hierarchy, the manager is delegated the authority to make decisions that set directions for the organization, employ subordinates and contract with external suppliers. This paper explains when such delegation of authority can be optimal, using a model of a firm with three...

Promising emerging equity markets often witness investment herds and frenzies, accompanied by an abundance of media coverage. Complementarity in information acquisition can explain these anomalies. Because information has a high fixed cost of production, its equilibrium price is low when...

Liquid markets where agents have limited capacity to sign exclusive contracts, as well as imperfect knowledge of previous transactions by others, raise the following risk: An agent can promise the same asset to multiple counterparties and subsequently default. I show that in such markets an...

This paper is about freedom of choice and rigidity of choice rules as incentive devices. We study the optimal design of an agent's freedom of choice when his information is endogenous and costly to acquire. We show that curtailing the agent's authority over decision-making may be optimal even if...

In this paper we investigate the principal-multi agent relationship with moral hazard where a risk neutral principal contracts with multiple risk averse agents whose actions are unobservable to the principal. We show that the well--known trade--off between incentive and risk sharing can be...

This paper addresses the relationship between individual perceptions and the uses of a business language. Perceptions are modeled explicitly, and are not common knowledge. A business language enables individuals with different perceptions to trade. I present a formal criterion for faithfulness...

In this paper we develop a formal model of the optimal financing of research projects, when the projects differ in both their success probability and the cost of undertaking. We show that in the benchmark case of publicly observable costs the first best can be achieved. If the costs are private...