This paper studies a contract between an optimistic agent and a realistic principal, both risk-neutral. Even with complete contracts and ex-ante symmetric information, it may be impossible to achieve the first-best unless the weight on emotions is sufficiently low.

In this note we study a model of vertical hierarchies where the allocation of residual claimancy is endogenous and is determined jointly with production and contractual decisions. We show that the (equilibrium) allocation of residual claimancy may be affected by production externalities across...

In a model of competing managerial firms I show that the equilibrium number of firms decreases with uncertainty if entry is relatively more costly than monitoring. The result adds to the earlier contributions and is consistent with the available evidence.