This paper analyzes a model where investors use a credit rating to decide whether to finance a firm. The rating quality depends on the unobservable effort exerted by a credit rating agency (CRA). We analyze optimal compensation schemes for the CRA that differ depending on whether a social...

Accounting reforms for careless audits have not come to grips with the basic problem affecting the accounting industry, which is that accounting firms work for the companies they audit. A lax audit can be conceived of as a multi-period game, in which the immediate and future payoffs to the...

Applying the theory of yardstick competition to the schooling system, we show that it is optimal to have central tests of student achievement and to engage in benchmarking because it raises the quality of teaching. This is true even if teachers' pay (defined in monetary terms) is not performance...

Two systems of bus driver compensation exist in Santiago, Chile. Most drivers are paid per passenger transported, while a second system compensates other drivers with a fixed wage. Compared with fixed-wage drivers, per-passenger drivers have incentives to engage in "La Guerra por el Boleto"...

Measurement is crucial to the implementation of output-based incentive schemes. This paper uses models to study the performance of teacher quality estimators that enter teacher incentive schemes. I model an administrator tasked with (i) categorizing teachers with respect to a cutoff, (ii)...