In this paper, I extend the organizational design literature by examining how the delegation choice is affected by the ability to resolve the incentive problem caused by this delegation. Based on the seminal papers by Grossman and Hart (1986) and Holmstrom and Milgrom (1994), I argue that the...

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...

This paper intends to contribute to the (bounded rationality) foundations of trust, showing how the concept of trust is related to the basic hypothesis on the behavior of the two people involved. First, I briefly review some definitions of trust found in the literature, and attempt to establish...

Value based performance measures are intended to capture increases in shareholder wealth. At the same time they have to measure the realization of the returns initially planned for. To provide incentives for management to act in the interest of owners, bonus payments are often based on these...

Access price regulation is used in telecommunications to prevent a vertically integrated firm, which controls an essential input, from raising the rivals' costs. When the authorities remove the access price as a strategic tool, it becomes optimal for the regulated firm to use the transfer price...

To address agents' moral hazard over effort, incentive contracts impose risk on the agents. As performance measures become noisier, the conventional agency analysis predicts that principals will reduce the incentive weights assigned to such measures. However, prior empirical results (Prendergast...

Using an experiment in which participants design rebus puzzles, we extend recent research on creativity-weighted productivity (i.e., quantity weighted by creativity ratings) by allowing participants to choose between a contract that rewards creativity-weighted productivity or one that rewards...

The bankruptcy system plays an important role in resolving financial distress and reallocating resources in the economy. While many believe that transparency is central to an efficient bankruptcy system, the Bankruptcy Code lacks clear standards for disclosure and financial reporting. In this...

Numerous (high-tax) countries presume that multinational firms use their transfer-pricing policies to shift profits into countries with lower tax rates. To avoid the corresponding loss in tax revenues, tax authorities develop constantly tightening rules which limit the scope of transfer-price...

We posit that the value of a manager's human capital depends on the firm's business strategy. The resulting interaction between business strategy and managerial incentives affects the organization of business activities, both the internal organization of the firm and the determination of firm...