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...

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...

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>

We study the optimal hierarchical structure of an organization under limited commitment. The organization cannot make a long term commitment to wages and output levels, while it can commit to its hierarchical structure. We show that the optimal hierarchical structure is horizontal when it is...

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...

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....