We derive the optimal contract between a principal and a liquidity-constrained agent in a stochastically repeated environment. The contract comprises a court-enforceable explicit bonus rule and an implicit fixed salary promise that must be self-enforcing. Since the agent's rent increases with...

Innovative projects can be carried out by small entrepreneurial partnerships or within large industrial firms. We investigate the effects of fostering the former by organizing an quot;incubatorquot; to improve the matching of individuals in teams. The respective equilibrium then entails a larger...

We analyze a Tullock-type takeover contest between two CEOs. To deter wasteful influence activities in shareholder optimum, the parachute compensates the (potentially) foregone earnings of the contestant whose incentives to invest in such activities are strongest. Therefore, the parachute is...

Using personnel data on back-office employees of an insurance company, we calculate three measures of pay inequity, “inequality,” “envy,” and “altruism,” for total pay as well as, separately, for three pay components, salary, commissions, and year-end bonuses. Job performance is...

<title>Abstract</title> <italic>Fair employment policies constrain employee selection: specifically, applicants’ professional experience can be a substitute for formal education. However, reflecting firm-specific job requirements, this substitution rule applies less strictly to applicants from outside the firm....</italic>

The O-Ring theory provides a framework for analyzing the effects of team production on the emergence of firms in the New Economy. Given risk-aversion of the potential team members, the productive advantage of perfect ability matching in teams suffices to establish an equilibrium which separates...