Economic theorists have devoted considerable attention to analyzing models of closely related incentive contracting problems that arise in the study of public procurement, private procurement, regulation, the theory of the firm, the theory of organizations, and managerial compensation. The...

This paper provides a formal analysis of how managerial investment incentives are affected by alternative allocation rules when managerial compensation is based on accounting measure of income which include allocations for investment expenditures. The major result is that a unique allocation...