We model competition between risk-neutral principals who hire weakly risk-averse agents to produce a good of variable quality. The agent can increase the likelihood of producing a high-quality good by providing costly effort. We demonstrate that, when the agent is strictly risk-averse, the cost...

We model the interaction between product market competition and internal governance at firms. Competition makes it more difficult to infer a manager's action given the realized output, thus increasing the cost of inducing effort. An exogenous change in the incentive to shirk increases managerial...