We analyze a situation where common noise makes compensation based on relative performance evaluation (RPE) desirable, but where the agents' ability to hold-up values ex post obstruct the implementation of optimal RPE schemes. The principal can take actions to constrain the agents' hold-up power...

When an agent is offered performance related pay, the incentive effect is not only determined by the shape of the incentive contract, but also by the probability of contract enforcement. We show that weaker enforcement may reduce the agent's effort, but lead to higher-powered incentive...

We analyze tax competition when a multinational firm has invested in two countries but also has an outside option, e.g., towards a third country. An interesting finding is that more attractive outside options for firms may constitute a win–win situation; the firm as well as its present host...

The extent to which a knowledge‐intensive firm should induce cooperation between its employees is analyzed in a relational contracting model. We extend the existing literature on agent cooperation by analyzing the implications of incomplete contracts and agent holdup. A main result is that if...