To date, much of the literature on institutional economics has relied on abstract metaphors based in exchange. Thus, Williamson introduced the fundamental insights surrounding his “transaction costs” model and discussed the governance of contracts in exchange relationships. Yet organizations...

Top management faces two key organizational design choices: (1) how much authority to delegate to lower-level managers, and (2) how to design incentive compensation to ensure that these managers do not misuse their discretion. Although theoretical accounting literature has emphasized the joint...

Pure incentive schemes rely on agent self-interest, rather than more coercive control, to motivate subordinates. Yet most organizations, and in particular public agencies, rely very little on pure incentive contracts. Most organizations rely on the primarily coercive mechanisms of monitoring and...

Large Language Models (LLMs) or generative AI have emerged as a new general-purpose technology in applied machine learning. These models are increasingly employed within firms to support a range of economic tasks. This paper investigates the economic value generated by the adoption and use of...

This paper considers the twofold problem of compensation contracting and the design of a human capital investment scheme. Before contracting the principal and the agent can engage in a joint stochastic production process of exerting effort to raise the agent's productivity in the firm. The...

This paper considers a firm's optimal investment in training and motivation measures in a hidden action agency problem. We study how these measures interact with each other and the contract in order to create value for the firm. Productivity enhancing training can be firm specific or non-firm...

Agency problems in inter-firm trading relationships are severe in developing and transitional economies because of the limited decentralized information that can support contract enforcement and because the timing of intermediate goods production and payment differ. We derive the consequences...

This paper considers an agency model in which the principal is privately informed of her production technology. In our model, the principal can require the agent to adopt the principal’s technology for production, or alternatively, to adopt a technology in the market. Information about the...

Co-sourcing is a new type of inter-organizational relationship, that is broader, both in operational scope and in risk sharing, than traditional outsourcing relationships. Based on a number of case studies, we develop analytical models of co-sourcing which evaluate when it is optimal, and what...

This paper analyzes delegation and joint decision making in an environment with private information and partially aligned preferences. We compare the benefits of these two decision making procedures as well as the interaction between them. We give a condition under which delegation is preferred...