We analyze the Moral Hazard problem, assuming that agents are inequity averse. Our results differ from conventional contract theory and are more in line with empirical findings than standard results. We find: First, inequity aversion alters the structure of optimal contracts. Second, there is a...

Employees are motivated intrinsically as well as extrinsically. Intrinsic motivation is crucial when tacit knowledge in and between teams must be transferred. Organizational forms enable different kinds of motivation and have different capacities to generate and transfer tacit knowledge. Since...

The multitask principal-agent theory argues that incentive devices for the agent tend to be complementary due to the need for balanced allocation of effort among the tasks. A growing body of empirical literature appears to support this notion. However, when there can be several signals for each...

The multitask agency theory argues that incentive devices for the agent need to be viewed as a system to induce balanced allocation of effort among the tasks. This important insight has not been incorporated into the empirical study of CEO compensation. Since there can be several measures for...

Responding to the financial crisis of 2008, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) to “provide for financial regulatory reform” and to “protect consumers and investors[.]” Section 951 of the Dodd-Frank Act (“Section 951”)...

This paper examines the consequences of the increased use of performance vesting provisions in long-term incentive compensation for CEOs and other executives in the post-2006 period following FAS 123R. We re-examine the agency prediction that incentives provided by accounting or other...

What is the optimal portfolio allocation when an agent is investing both for a firm and for himself? I address this question by solving a manager's decision problem under a specific executive compensation structure. Specifically, I study how flat wage and stock compensation affect the manager's...

I study the role the agent's wealth plays in the principal-agent matching with moral hazard and limited liability. I consider wealth and talent as the agent's type, and size as the firm's (principal's) type. Because utility is not perfectly transferable in this setup, I use generalized...

Relative performance evaluation (RPE) in CEO compensation can be used as a commitment device to pay CEOs for their revealed relative talent. We find evidence consistent with the talent-retention hypothesis, using two different approaches. First, we examine the RPE terms in compensation contracts...