The literature on relational incentive contracts suggests that firms may be able to condition payments to employees on information that is not available to those outside the firm. Given this, market participants may use the magnitude of such payments to infer the non-public information, which...

Firms often pay individuals for group-level, industry-level, or even economy-wide performance when agency theory suggests these contracts provide minimal incentive and lead to inefficient risk bearing. This paper derives a simple model of why firms might choose to implement stock options, profit...