We explain why organizations that limit the voice of their agents can benefit from granting them an exit option. We study a hierarchy with a principal, a productive supervisor and an agent. Communication is imperfect in that only the supervisor can communicate with the principal, while the agent...

Consider the case of a firm with private valuation information bargaining with a supplier over the price and quantity of a good. If the firm and the supplier bargain directly, the bargaining outcome may not yield a first-best outcome due to the presence of information rents. The question we...

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,...

This paper studies the strategic value of delegation in dynamic interactions, where principals provide managers with intertemporal incentives in order to obtain a competitive advantage. While direct management offers intertemporal commitment opportunities, the separation of ownership from...

This paper presents a formal model of tunneling and propping in a pyramidal ownership structure. Tunneling refers to controlling shareholders shifting funds from one firm to another in the same pyramid. Propping is tunneling that is done to save the receiving firm from bankruptcy. We compare the...

We study how firm boundaries are affected by the reduction in search costs when business-to-business electronic markets are adopted. Our paper analyzes a multi-tier industry in which upstream parts suppliers incur procurement search costs, and downstream manufacturers incur incentive contracting...

This paper analyzes a mechanism through which product market competition affects allocation of the managerial efforts. There are two types of firms, incumbents and entrants. Each incumbent firm delegates its control to a manager and cannot observe the manager's effort. The managers of incumbent...

This paper studies the effects of product market competition on vertical integration. In a duopoly setting, each retailer is associated with a manufacturer who must decide how to allocate property rights over the retail asset. Choosing delegation of property rights over vertical integration...

External recruitment has often been viewed as a necessary evil in that it trades off the need for outside talents with the incentives of inside workers. This paper, however, shows that even from an incentive viewpoint, external recruitment has its positive role to play. Specifically, if...

In this paper I study how the make-or-buy decision of a firm depends on the organization of its peers. I consider a multi-firm framework in which firms choose whether to integrate into the supply of an intermediate input or to outsource its production, and choose the size of their supplier...