Business firms as well as each of their subunits can be thought of as a set of contracts in which participating agents seek their own goals. Participants contribute resources, expecting to receive in exchange more than the opportunity cost of their contributions. For this system to work, the...

In this paper, a principal's decision between delegating two tasks or handling one of the two tasks herself is analyzed. We assume that the principal uses both, formal contracts and informal agreements sustained by the value of future relationships (relational contracts) as incentive device. It...

This paper analyzes the problem of optimal job design when there is only one contractible and imperfect performance measure for all tasks whose contribution to firm value is non-verifiable. I find that task splitting is optimal when relational contracts based on firm value are not feasible. By...

Optimal team composition has been the focus of exhaustive analysis, academic and otherwise. Yet, much of this analysis has ignored possible dynamic effects: e.g., anticipating that team formation is based on prior performance will affect prior performance. We test this hypothesis in a lab...

To provide efficient incentives, the three components of an incentive system (i.e., performance measurement, rewards, and the allocation of decision rights) need to be balanced against each other. In practice, the authority to decide on these components is frequently distributed across...

Research suggests that restricted labor mobility discourages managers from investing in human capital and reduces firm value. However, whether firms re-incentivize managers to mitigate its adverse effects remains unexplored. We find that after the adoption of the inevitable disclosure doctrine...

I develop a model of contracting under reciprocal altruism accounting for some evidence which is paradoxical from the point of view of neoclassical models with selfish actors. My model predicts the crowding-out effect observed in the Trust Game with the possibility of a fine; for the Control Game...

This paper studies how organizations manage the social comparisons that arise when their employees' pay and tasks, and hence their status vis-à-vis peers, differ. We show that under a "pay transparency policy", the organization may compress pay and distort the employees' tasks to minimize...

Most mutual fund managers have performance-based contracts that are incomplete. We study risk-shifting implications emanating from these contracts. Our theory predicts that mutual fund managers with asymmetric contracts and mid-year performance close to their announced benchmark increase their...

In this paper it is demonstrated that voluntary bargaining over a collective decision under asymmetric information may well lead to ex post efficiency if the default decision is non-trivial. It is argued that the default decision may be interpreted as a 'simple' contract that the parties have...