Motivated by psychological evidence that self-esteem plays an important role in individual decision-making, this paper studies how self-esteem concerns influence a manager's effort choice and hedging behavior and how a board designs the managerial compensation in response. We show that when the...

We develop a liquidity management model with dynamic agency. The agent controls short-term investment, which affects the current profitability, and long-term investment, which determines the firm growth. Regardless of the correlation between transitory cash flow and permanent growth shocks, the...

I study the optimal choice of investment projects in a continuous time moral hazard model with multitasking. While in the first best, projects are invariably chosen by the net present value (NPV) criterion, moral hazard introduces a cutoff for project execution which depends on both a project's...

I study a continuous-time principal-agent model in which a multitasking agent engages in unobserved risk-taking. Risk-taking creates short-term profits but also increases the chance of large losses. The optimal contract incentivizes excessive risk-taking when the agent has insufficient skin in...

I study the optimal choice of investment projects in a continuous time moral hazard model with multitasking. While in the first best, projects are invariably chosen by the net present value (NPV) criterion, moral hazard introduces a cutoff for project execution which depends on both a project's...

This paper studies dynamic risk taking by a risk-averse manager who receives a bonus; the company may default on its contractual obligations (debt, fixed compensation). We show that risk-taking is time-independent, and is summarized by the so-called risk-aversion of derived utility. We highlight...

We analyze optimal labor contracts when the worker is inequity averse towards the employer. Welfare is maximized for an equal sharing rule of surplus between the worker and the firm. That is, profit sharing is optimal even if effort is contractible. If the firm can make a take-it-or leave-it...

This paper examines the effect of imperfect labor market competition on the efficiency of compensation schemes in a setting with moral hazard and risk-averse agents, who have private information on their productivity. Two vertically differentiated firms compete for agents by offering contracts...

Relative performance evaluation (RPE) is, at least on paper, enjoying widespread popularity in determining the level of executive compensation. Yet existing empirical evidence of RPE is decidedly mixed. Two principal explanations are held responsible for this discord. A constructional challenge...

We provide a new rationale for the use of discretionary bonuses. In a setting with unknown match qualities between a worker and a firm and subjective evaluations by the principal, bonuses are useful in order to make the feedback from the firm to the workers credible. This way workers in good...