Corporate scandals, reflected in excessive management compensation and fraudulent accounts, cause great damage. Agency theory’s insistence to link the compensation of mangers and directors as closely as possible to firm performance is a major reason for these scandals. They cannot be overcome...

Both asset ownership and contracts play important roles in providing incentives for relationship specific investments, and hence in determining the boundary of the firm. Significant progress has been made in understanding the roles that these instruments play, but largely in isolation from each...

It is often suggested that incentive schemes under moral hazard can be gamed by an agent with superior knowledge of the environment and that deliberate lack of transparency about the incentive scheme can reduce gaming. We formally investigate these arguments in a two-task moral hazard model in...

We analyze a model of hierarchies in organizations where neither decisions themselves nor the delegation of decisions are contractible, and where power-hungry agents derive a private benefit from making decisions. Two distinct agency problems arise and interact: Subordinates take more biased...