We study the effects of competitive preferences, where Chief Executive Officers (CEOs) compare their wage to the wage of other CEOs within the same industry, and derive utility from being ahead of them. We show that such social concerns work in the direction of CEO wages being positively...

The role of certifiers is to test products for quality, and to communicate the test results to the market. We construct a free-entry model of certification, where each certifier chooses a test standard and a price for certification. In equilibrium, certifiers differentiate their test standards,...

I consider two seemingly unrelated puzzles. 1.Why is relative performance evaluation (RPE) used less in CEO compensation than agency theory suggests? 2.Why is sometimes, e.g., for fund managers, a 'modest' performance more highly rewarded than 'very high' performances? I consider a simple...

We consider a financing game with costly enforcement based on Townsend (1979), but where monitoring is non-contractible and allowed to be stochastic. Debt is the optimal contract. Moreover, the debt contract induces creditor leniency and strategic defaults by the borrower on the equilibrium...

What determines the quality of entrepreneurs? To address this question, the paper proposes a simple model of the interaction between individual workers' decision to become entrepreneurs and established firms' effort to keep their best workers and ideas. The main prediction from the model is that...

We consider financial structure and repayment behavior in a setting where cash flows are private information to the entrepreneur and the cost of enforcing repayment differ across security holders. If enforcement costs are lower for shareholders than for creditors, a mixed capital structure with...