We examine optimal information flows between a manager and a worker who is in charge of evaluating a parameter of interest, e.g. the value of a project. The manager may possesses information about the parameter, and, if informed, may divulge her information to the worker. We show that...

This paper models two key roles of subjective performance evaluations: their incentive role and their feedback role. The paper shows that the feedback role makes subjective pay feasible even without repeated interaction, as long as there exists some verifiable measure of performance. It also...

Standard principal-agent theory predicts that large firms should not use employee stock options and other stock-based compensation to provide incentives to non-executive employees. Yet, business practitioners appear to believe that stock-based compensation improves incentives, and mounting...

Standard models of promotion tournaments assume that firms can commit to arbitrary tournament prizes. In this paper, a firm's ability to adjust tournament prizes is constrained by the outside labor market, through the wages other firms are willing to offer to the promoted and unpromoted workers....

This article identifies a new type of cost associated with centralization. If workers are liquidity constrained, it may be less costly to motivate a worker who is allowed to work on his own idea than a worker who is forced to follow the manager's idea. Thus, it may be optimal to let workers...

Profit-maximizing owners of firms may find it optimal to provide managers with incentives to maximize sales in addition to profits. This influences the outcome of the bargaining game between workers and managers over workers' wages and helps to solve the problem of underinvestment by workers in...

This paper provides a possible explanation for the empirically observed size-wage effect and inter-industry wage differences. It develops a model in which incentives for workers to accumulate general human capital are provided by corporate tournaments, where workers with the highest level of...

Many argue that elements of a society's norms, culture, or social capital are central to under-standing its development. However, these notions have been difficult to capture in economic models. Here we explore a possible role for "trustworthiness" as corresponding to social capital. Individuals...