This paper is a contribution to the ongoing debate on the benefits and drawbacks of bank revenue diversification. Revenue diversification may benefit banks if diversified activities are inherently less risky and possess high returns, while it may hurt banks if diversified activities are more...

This paper is a contribution to the ongoing debate on the benefits and drawbacks of bank revenue diversification. Revenue diversification may benefit banks if diversified activities are inherently less risky and possess high returns, while it may hurt banks if diversified activities are more...

The allocation of control rights is a key issue in incomplete contracts. In this paper, we add an exit option, the right of early termination, to the standard agency model for employment contracts. We address two questions: (1) Who should have this right? (2) What is the effect of its inclusion...

In a two-period, double moral hazard model with incomplete contracting, this paper explores the relationship between revenue sharing and control rights. Specifically, we endogenize the allocation of both the income rights and the control rights and show why the two are often bundled together in...

Before 2005 when the Kyoto Protocol went into force, the Framework Convention of Climate Change (FCCC) did not impose any binding restrictions on carbon emissions of member countries. Many argue that such a treaty would not reduce carbon emissions. In this paper, we investigate the effect of...

This note offers a unified framework for all contractual relationships. In particular, it defines incomplete contracts and explains simple contracts. Although widely used in practice, incomplete contracts have not been well defined in the literature. The existing definitions of contracts are...

This paper presents a theory on how firm structure responds to market competitiveness. Firms have often been observed to reallocate control rights, sometimes in response to market competition. We develop a theory on the dependence of firm structure on market competition using an incomplete...

Whether to set managerial rules or allow managerial discretion is a key issue in organizations. In this paper, we investigate the boundaries between rules and discretion in the firm. Using an incomplete contract approach, we differentiate between projects that are more efficiently managed under...

Investors often behave in puzzling ways. In this paper, we develop a theory that implies “unusual” investor behaviors in a market equilibrium with heterogeneous investors who formulate their investment strategies based on their individual assessments of market signals, where market signals...