This study adopts behavioral contract theory through a mathematical model and clarifies the situation in which a fixed–salary contract is preferable to incentives–based one for the principal. Theoretically, the expected utility for the principal is higher under an incentives–based contract...

We analyze the impact of social comparison on optimal contract design under imperfect labor market competition for managerial talent. Adding a disutility of social comparison as induced by a ranking of verifiable efforts to the multi-task model by Bénabou and Tirole (2016), we demonstrate that...

This paper is an attempt to understand the effects of leaders on organizational performance. We argue for an "expert leader" model of leadership. We differentiate between four kinds of leaders according to their level of inherent knowledge and industry experience. After controlling for...

This paper is an attempt to understand the effects of leaders on organizational performance. We argue for an ‘expert leader' model of leadership. We differentiate between four kinds of leaders according to their level of inherent knowledge and industry experience. After controlling for...

Although stock options are commonly observed in chief executive o±cer (CEO) compensation contracts, there is theoretical controversy about whether stock options are part of the optimal contract. Using a sample of Fortune 500 companies, we solve an agency model calibrated to the company-specific...

Risk-neutral individuals take more risky decisions when they have limited liability. Risk-neutral managers may not when acting as agents under contract and taking costly actions to acquire information before taking decisions. Limited liability makes it optimal to increase the reward for outcomes...

Empirical and experimental papers find that high-powered incentives may reduce performance rather than improve it; a phenomenon referred to as "choking under pressure". We show that competition for high ability workers nevertheless leads firms to offer high bonus payments, thereby deliberately...

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...

Relative performance evaluation (RPE) is, at least on paper, enjoying widespread popularity in determining the level of executive compensation. Yet existing empirical evidence of RPE is decidedly mixed. Two principal explanations are held responsible for this discord. A constructional challenge...

Relative performance evaluation (RPE) is, at least on paper, enjoying widespread popularity in determining the level of executive compensation. Yet existing empirical evidence of RPE is decidedly mixed. Two principal explanations are held responsible for this discord. A constructional challenge...