Benjamin E. Hermalin and Michael L. Katz<BR> Keywords: diversification; principal-agent relationship<BR> Firms undertake a variety of actions to reduce risk through diversification, including entering diverse lines of business, taking on project partners, and maintaining portfolios of risky projects...

The standard economic model of decision making assumes a decision maker makes her choices to maximize her utility or happiness. Her current emotional state is not explicitly considered. Yet there is a large psychological literature that shows that current emotional state, in particular positive...

The authors identify the primary findings of the empirical literature on boards of directors. Typically, these studies have sought to answer one of the following questions: How are the characteristics of the board related to profitability? How do these characteristics affect boards' observable...

This paper shows how fixed costs can play an important role in determining the structure of organizations. Applications considered include layoffs, downsizing, heterogeneity among firms, and the structure of hierarchies. Agency problems as a source of fixed costs are also considered.

Previous empirical analyses of the relationship between executive compensation and firm performance are often interpreted as suggesting that this relationship is weak. Although an absolute term like "weak" is ambiguous in this context, relative terms, such as "stronger," are meaningful. We argue...