Japan's prolonged economic problems are due to more than faulty macro-economic policies. We do not deny the importance of bungled macro-economic policy, but argue that deeper maladies in Japanese corporate governance made that country increasingly vulnerable to such problems.

It is widely believed that the stock-market oriented US financial system forces corporate managers to behave myopically relative to their Japanese counterparts, who operate in a bank-based system. We hypothesize that if US firms are more myopic that Japanese firms, then episodes of financial...

We develop a model of hierarchies based on the allocation of authority. A firm's owners have ultimate authority over a firm's decisions, but they have limited time or capacity to exercise this authority. Hence owners must delegate authority to subordinates. However, these subordinates also have...