Although stock options are commonly observed in chief executive o±cer (CEO) compensation contracts, there is theoretical controversy about whether stock options are part of the optimal contract. Using a sample of Fortune 500 companies, we solve an agency model calibrated to the company-specific...

Consider managers evaluating their employees\' performances. Should managers justify their subjective evaluations? Suppose a manager\'s evaluation is private information. Justifying her evaluation is costly but limits the principal\'s scope for distorting her evaluation of the employee. I show...

This paper studies a principal-agent relation in which the principal's private information about the agent's effort choice is more accurate than a noisy public performance measure. For some contingencies the optimal contract has to specify ex post inefficiencies in the form of inefficient...

When workers are faced with the threat of unemployment, their relationship with a particular firm becomes valuable. As a result, a worker may comply with the terms of a relational contract that demands high effort even when performance is not enforceable by a third party. But can relational...

We consider a Rothschild-Stiglitz-Spence labour market screening model and employ a centralised mechanism to coordinate the efficient matching of workers to firms. This mechanism can be thought of as operated by a recruitment agency, an employment office or head hunter. In a centralised...

We analyze the optimal allocation of authority in an organization whose members have conflicting preferences. One party has decision-relevant private information, and the party who obtains authority decides in a self-interested way. As a novel element in the literature on decision rights, we...

Who does, and who should initiate costly certification by a third party under asymmetric quality information, the buyer or the seller? Our answer ' the seller ' follows from a non-trivial analysis revealing a clear intuition. Buyer-induced certification acts as an inspection device, whence...

Certifiers contribute to the sound functioning of markets by reducing a symmetric information. They, however, have been heavily criticized during the 2008-09 financial crisis. This paper investigates on which side of the market a monopolistic profit-maximizing certifier offers his service. If...

In an industry where regulated firms interact with unregulated suppliers, we investigate the welfare effects of a merger between regulated firms when cost synergies are uncertain before the merger and their realization becomes private information of the merged firm. The optimal merger policy...

We investigate the incentive for partial vertical integration, namely, partial ownership agreements between manufacturers and retailers, when the retailers are privately informed about their production costs and engage in differentiated good price competition. Partial vertical integration...