Uninformed investors (the principal) often delegate investments to institutions (the agent) with information advantages. However, conventional linear benchmarked contracts tend to cause excessive pegging to the benchmark and thus price distortion of stocks in the benchmark. This paper studies...

I study the conditions under which assets are sold or used as collateral. Secured loans can be optimal by reducing the lender's incentives to acquire costly information about the future value of collateral assets. Furthermore, when the borrower has incentives to falsify the assets' quality, the...

In the presence of moral hazard and costly information acquisition, we show that absolute performance pay and benchmarking naturally arise as part of the contract between investors and active managers. The commonality in compensation incentives across funds, however, gives rise to externalities....

Motivated by psychological evidence that self-esteem plays an important role in individual decision-making, this paper studies how self-esteem concerns influence a manager's effort choice and hedging behavior and how a board designs the managerial compensation in response. We show that when the...

The optimal contracts in portfolio delegation under general preferences are characterized when the underlying state variable is not contractible, and the principal must rely on the final returns of portfolios to design the compensation schemes for the fund manager. We show that the optimal...

In this paper we analyze the optimal contract for a portfolio manager who can exert effort to improve the quality of a private signal about future market prices. We assume complete markets over states distinguished by asset payoffs and place no restrictions on the form of the contract. We show...