In this paper, we consider a dynamic signaling model of an R&D market in which a researcher can choose either a safe project (exploitation) or a risky project (exploration) at each instance. We argue that there are substantial efficiency gains from rewarding minor innovations above their social...

A manager's current and potential future employers are continually assessing her or his ability. Such assessment is a crucial component of corporate governance and this chapter provides an overview of the research on that aspect of governance. In particular, we review how assessment generates...

Both psychologists and economists have argued that rewards often have hidden costs. One possible reason is that the principal may have incentives to offer higher rewards when she knows the task to be difficult. Our experiment tests if high rewards embody such bad news and if this is perceived by...

This note reconsiders communication between an informed expert and an uninformed decision maker with a strategic mediator in a discrete Crawford and Sobel (1982) setting. We show that a strategic mediator may improve communication even when he is biased into the same direction as the expert. The...

When a principal’s monitoring information is private (non-verifiable), the agent should be concerned that the principal could misrepresent the information to reduce the agent’s wage or collect a monetary penalty. Restoring credibility may lead to an extreme waste of resources - the so-called...

To date, much of the literature on institutional economics has relied on abstract metaphors based in exchange. Thus, Williamson introduced the fundamental insights surrounding his “transaction costs” model and discussed the governance of contracts in exchange relationships. Yet organizations...

This article studies how delay in contracting depends on an exogenous signal. The agent whose cost is his private information may produce in the first period or be delayed until the second period. A signal about the cost of the agent is available between the two periods. The quality of the good...

This paper introduces the theory of agency, identifies key concepts, relationships, and logics of agency. Norms of agency are identified and discussed, including the fiduciary norm. Problems of agency are identified and discussed. Applications of agency theory are made to regulation, the...

This paper explores the role of information transmission and misaligned interests across levels of government in explaining variation in the degree of decentralization across countries. Within a two-sided incomplete information principal-agent framework, it analyzes two alternative...