We consider the optimal allocation of decision rights over noncontractible specific investments. Risk-averse business unit managers each engage in general (stand-alone) operations and invest in joint projects that benefit their own and other divisions. Which of the managers should have the...

Vertical integration is often proposed as a way to resolve hold-up problems in connection with specific investments. However, decision-makers are generally compensated based on divisional (not firm-wide) profit. Hence, hold-up problems are bound to resurface in integrated firms. This paper...

Vertical integration is often proposed as a way to resolve hold-up problems, ignoring the empirical fact that division managers tend to maximize divisional (not firmwide) profit when investing. This paper develops a model with asymmetric information at the bargaining stage and investment returns...

Experimentation is the main engine of innovation. It often involves separation of tasks and information asymmetry. We model a repeated setting where a principal chooses a project in each period. While evaluating to implement the project, an agent privately learns the project state and...

This paper studies how to assign monitors to productive agents in order to generate signals about the agents? performance that are most useful from a contracting perspective. We show that if signals generated by the same monitor are negatively (positively) correlated, then the optimal monitoring...

This paper investigates how non-financial performance measures (NPMs) can be used to encourage cooperation across divisions. The implementation of a project often requires joint efforts by multiple divisions. However, privately informed division managers sometimes find it in their self-interest...

Integrated ownership is often seen as a way to foster specific investments. However, even in integrated firms, managers invest to maximize their compensation, which is chiefly driven by divisional income. Thus it is not clear that integration has any effect on investments in a world of...

This paper develops a model framework and a corresponding empirical inference procedure for estimating long-run marginal cost in industries where production costs decline over time. In the context of the solar photovoltaic module industry, we rely on firm-level financial accounting data to...