The literature on incentive contracting suggests that the optimal performance pay contract depends on a tradeoff between productivity and agency costs. The effect of employee ability on this tradeoff is theoretically ambiguous, as the employee’s private gains (through more sophisticated gaming...

In this paper, we investigate the antecedents of inertia in capital allocation decisions in organizations. Despite the importance of flexible capital reallocation, empirical evidence points to remarkably high levels of stability in these decisions. Adopting a behavioral perspective, we focus on...

We analyze the determinants of value creation and capture in a buyer-supplier relationship. In particular, we study how key contracting parameters, such as production efficiency, transactional integrity, incentive gaming and alignment affect outcomes when buyer faces competing suppliers....

This paper explores conflicting implications of firm-specific human capital (FSHC) for firm performance. Existing theory predicts a productivity effect that can be enhanced with strong incentives. We propose an offsetting agency effect: FSHC may facilitate more sophisticated “gaming” of...