One of the main findings of the principal-agent literature has been that incentive schemes should be sensitive to all information that bears on the agent's actions. As a manifestation of this principle, incentive schemes tend to take quite complex (non-linear) forms. In contrast, real world...

In Holmstrom (1982) an example is given, which shows that a manager's concern for the value of his human capital will lead to a natural incongruity in risk-preferences between himself and the owners, even when no effort considerations are involved. In this paper we present a formal model of this...

Our purpose in this paper is to investigate the economics of managerial organizations by focusing on the decision problem of management. Ours is a "team theory" analysis, that is, it ignores the problem of conflicting objectives among managers and focuses instead on the problem of coordinating...

The Invisibility Hypothesis holds that the job skills of disadvantaged workers are not easily discovered by potential new employers, but that promotion enhances visibility and alleviates this problem. Then, at a competitive labor market equilibrium, firms profit by hiding talented disadvantaged...

In a repeated partnership game with imperfect monitoring, we distinguish among the effects of (1) shortening the period over which actions are held fixed, (2) increasing the frequency with which accumulated information is reported, and (3) reducing the amount of discounting of payoffs between...

When changing jobs is costly, efficient employment arrangements are characterized by complex contracts, rather than simply wages. Under these contracts, workers are not generally fully compensated for the effects of post-employment events or decisions. As a consequence, if there is a central...

We show that in a large production economy, the cost of collecting the information required by a planner to set nearly optimal prices is negligible relative to the total output of the economy. The cost of collecting the information required to set a nearly optimal production plan for each firm...

We investigate the conventional wisdom that competition among interested parties attempting to influence a decision maker by providing verifiable information brings out all the relevant information. We find that, if the decision maker is strategically sophisticated and well informed about the...

This paper discusses two central questions: Why do auction institutions continue to be so popular after thousands of years? and What accounts for particular details, like the popularity of sealed bid and ascending-bid auctions?

We present a signalling model, based on ideas of Phillip Nelson, in which both the introductory price and the level of directly "uninformative" advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a...