Employment contracts give a principal the authority to decide flexibly which task his agent should execute. However, there is a tradeoff, first pointed out by Simon (1951), between flexibility and employer moral hazard. An employment contract allows the principal to adjust the task quickly to...

Employment contracts give a principal the authority to decide flexibly which task his agent should execute. However, there is a tradeoff, first pointed out by Simon (1951), between flexibility and employer moral hazard. An employment contract allows the principal to adjust the task quickly to...

States and the federal government have enacted laws intended to police franchisors' use of termination provisions in franchise contracts to opportunistically take over profitable establishments. This regulation may, however, reduce the total number of chain outlets because franchising is a...

The Fisher Body-General Motors case illustrates the costs of using inherently imperfect long-term contracts to solve potential holdup problems, and therefore the advantages of vertical integration. Fisher Body held up General Motors by renegotiating its body supply contract so that, contrary to...

All humans and the institutions they create err from time to time. Regulatory agencies are no exception. This essay hypothesizes that by failing to recognize mutual fund abnormal returns as an open-access common pool subject to a race to first possession, the U.S. Securities and Exchange...

This paper views authority as the right to undertake decisions that have external effects on other members of the organization. Because of contractual incompleteness, monetary incentives are insufficient to internalize these effects in the decision maker's objective. The optimal assignment of...