This paper provides a rationale for why an organization often generates a bias in favor of a new project even after learning that its profitability will be certainly below more conventional ones. We analyze a principal-agent model with two alternative projects, one of which is to be chosen by...

Using an agency model, we show how delegation, by generating additional private information, improves dynamic incentives under limited commitment. It circumvents ratchet effects and facilitates the revelation of persistent private information through two effects: a play-hardball effect, which...

An entrepreneur needs a lender`s capital input to finance a project. The entrepreneur, who is privately informed about the project environment, provides a labor input (effort). Capital and labor are perfect complements. We show that the entrepreneur may optimally distort the project`s...

We compare upfront and staged financing to see when and how one financing policy prevails over the other. In our model, there are two moral hazard problems that interact with each other. First, the entrepreneur may pursue his own private benefit out of the raised fund in the initial period....

Using an agency model, we show how delegation, by generating additional private information, improves dynamic incentives under limited commitment. It circumvents ratchet effects and facilitates the revelation of persistent private information through two effects: a play-hardball effect, which...

This paper considers an agency model in which the agent can update the principal’s belief before the contract is offered. We identify that the agent who has a bad potential to perform the task has a small chance to receive information rent, but if he receives it, he receives a large amount....

type="main" <p>Using an agency model, we show how delegation, by generating additional private information, improves dynamic incentives under limited commitment. It circumvents ratchet effects and facilitates the revelation of persistent private information through two effects: a play-hardball...</p>