This paper provides an explanation for why incentive contracts that are muted (compared to incentive contracts derived from standard agency models) may be effective in motivating team members. By having the team repeat a task in a second period, the explicit incentives that need to be provided...

In this paper we examine a simple but suggestive setting in which the income number arises naturally (and directly) from competitive markets. While no explicit assumptions are made about individual firm's objectives, it turns out that equilibrium is consistent with the maximization of a number...

This note studies a moral hazard model of joint production in which there are strong gains to coordination. The mechanism we propose for resolving the tacit collusion problem that arises in our setting is simple. A key aspect of the mechanism is the use of at- will contracts which provide the...

In this paper, we resolve the auditor independence problem that arises in the model studied in Antle (1982, 1984). We argue that the owner-manager-auditor relationship exhibits a "separability" that facilitates the use of a particularly simple mechanism that prevents collusion. The mechanism...

We formally establish the link between linear algebra and the double entry bookkeeping system: the system transforms a vector of numerical values corresponding to transaction amounts to a financial statements vector through matrix multiplication. The matrix is called a generator matrix (it is...

In this paper, limited managerial capacity gives rise to a timing option: agents can implement projects now-or-later. Because each agent cares only about the project he implements, while the principal cares about the projects undertaken in aggregate, the timing option may be valued differently...

A common explanation for why firms incur sunk costs is that technology considerations make them inescapable. This paper shows that sometimes firms may prefer to make early (less informed) investment decisions even when technology allows such decisions to be delayed. Sunk costs commit and clarify...

common explanation for why firms incur sunk costs is that technology considerations make them inescapable. This paper shows that sometimes firms may prefer to make early (less informed) investment decisions even when technology allows such decisions to be delayed. Sunk costs commit and clarify a...

The push for increased transparency in financial reporting and corporate governance serves shareholders only up to a limit. The problem of assessing the value of transparency to shareholders is subtle because both the level and pattern of earnings can convey information. Even when earnings...