We study a firm in which the marginal productivity of agents' effort increases with the effort of others. We show that the presence of an agent who overestimates his marginal productivity may make all agents better off, including the biased agent himself. This Pareto improvement is obtained even...

Several finance and economics problems involve a team of agents in which the marginal productivity of any one agent increases with the effort of others on the team. Because the effort of each agent is not observable to any other agents, the performance of the team is negatively affected by a...

The financial crisis has generated fundamental reforms in the financial regulatory system in the U.S. and internationally. Much of this reform was in direct response to the weaknesses revealed in the precrisis system. The new “macroprudential” approach to financial regulations focuses on...