We examine the characteristics of endogenously-determined optimal incentive contracts for agents who envy each other and work for a risk-neutral (non-envious) principal. Envy makes each agent care not only about absolute consumption but also about relative consumption. Incentive contracts in...

This paper examines the process by which individuals get selected to be leaders and the attributes of leaders. It develops a model in which managers of a priori unknown ability are being judged relative to each other to determine who should be appointed the leader of the group. Managers are...

We develop a model that explains why the manager of a firm may smooth reported earnings by reducing its variability through time. Greater earnings volatility leads to a bigger informational advantage for informed investors over uninformed investors. If a sufficient number of current shareholders...

This paper develops a theory in which housing prices, the capital structures of banks that make mortgage loans and the capital structures of borrowers who take these loans are all endogenously determined in equilibrium. There are four main results. First, leverage is a quot;positively...

We model agents whose preferences exhibit envy. An envious agent's utility is increasing in what he has and decreasing in what others have. With this setup we are able to provide a new perspective on the nature of investment distortions with centralized and decentralized capital budgeting...

We examine the interaction between corporate governance at two levels: internal organizational governance that is intended to distinguish among managers of a priori unknown abilities to determine who becomes CEO, and corporate governance at the board level that seeks to retain or fire the CEO...

We develop a model in which CEOs envy each other based on their compensation. When CEO compensation is increasing in the firm's market value and size, we show that envy can cause merger waves even when the shock that precipitated the first merger in the wave is purely idiosyncratic. The analysis...