We examine the problem of motivating privately informed managers to engage in entrepreneurial activity to improve the quality of the firm's investment opportunities. The firm's investment and compensation policy must balance the manager's incentives to provide entrepreneurial effort and to...

We consider optimal capital allocation and managerial compensation mechanisms for decentralized firms when division managers have an incentive to misrepresent project quality and to minimize privately costly but value-enhancing effort. We show that in the optimal mechanism firms always under...

We consider a firm with two investment projects (divisions) each run by a manager who can provide (i) (unverifiable) information about the quality of either or both projects and (ii) (unverifiable) access to valuable resources that can enhance the cash flows of either or both projects. We then...