We study firms' internal resource allocation using a dynamic principal-agent model with endogenous cash-flow volatility. The principal supplies the agent with resources for productive use, but the agent has private control over both project volatility and resource intensity and may misallocate...

We introduce a continuous-time principal-agent model where the agent can privately influence both the drift and diffusion of the cash flows. The total diffusion is the product of the agent's volatility choice and a stochastic volatility process that is unobservable to the principal. This model...

We study a firm's internal resource allocation using a dynamic principal-agent model with endogenous cash flow volatility. The principal supplies the agent with resources for productive use, but the agent has private control over both project volatility and resource intensity and may misallocate...

I introduce novel preference formulations which capture aversion to ambiguity about unknown and potentially time-varying volatility. I compare these preferences with Gilboa and Schmeidler’s maxmin expected utility as well as variational formulations of ambiguity aversion. The impact of...

This paper studies, both theoretically and empirically, the optimal executive compensation when firm performance is a noisy signal of executive’s hidden effort and the volatility of firm performance is stochastic. We build a tractable dynamic principal-agent model and show analytically that...