It is a common practice for firms to conduct performance evaluations of their employees and yet to withhold this information from those employees. This paper argues that firms strategically withhold performance information to retain workers. In particular, if the worker enjoys high outside...

Despite the clear prescription from economic theory that a firm should set price based only on variable costs, firms routinely factor fixed costs into pricing decisions. We show that full-cost pricing (FCP) can achieve the optimal price. FCP marks up variable cost with the contribution margin...

We study how biases in financial reporting affect managers' incentives to develop innovative projects and to make appropriate investment decisions. Conservative reporting practices impose stricter verification standards for recognizing good news, and reduce the chance that risky innovations will...

Why do reputable audit firms fail? This paper provides a formal theory of auditor reputation formation. Even under well-functioning reputation mechanisms, an auditor with a strong reputation has incentives to shirk. Above a threshold-reputation, the market belief about the auditor's ability...

This study defines reporting conservatism as a higher verification standard for probable gains compared to losses and builds a model that endogenously generates optimal behavior resembling an asymmetric preference for gains versus losses. Our model considers the setting where one party produces...

We examine how firms balance difficulty of performance targets in their annual bonus plans. We present an analytical model showing that managerial allocation of effort is a function of not only relative incentive weights but also the difficulty of performance targets. We find that relative...

The push toward global connectivity and the worldwide expansion of the internet, combined with the ongoing decline in the cost of technology, will change global labor markets and the nature of employment. Future technology will coordinate the assignment, distribution, and measurement of tasks to...

The push toward global connectivity and the worldwide expansion of the internet, combined with the ongoing decline in the cost of technology, will change global labor markets and the nature of employment. Future technology will coordinate the assignment, distribution, and measurement of tasks to...

We formulate and analyze a model of team structure and monitoring within a LEN agency framework. We incorporate three key instruments in the internal design of an organization involving team production: team size, monitoring activities, and incentive contracts. We show that the complex...