We demonstrate a novel link between relationship-specific investments and risk in a setting where division managers operate under moral hazard and collaborate on joint projects. Specific investments increase efficiency at the margin. This expands the scale of operations and thereby adds to the...

We consider the optimal allocation of decision rights over noncontractible specific investments. Risk-averse business unit managers each engage in general (stand-alone) operations and invest in joint projects that benefit their own and other divisions. Which of the managers should have the...

We study how the precision of managers’ private post-contract predecision information affects the pay-performance relation. Taking into account that the information environment in decentralized firms is often endogenously determined (e.g., by investment in internal accounting systems, hiring...