This paper examines the agency cost of winner-picking in multi-divisional firms and uses explicit incentive contracts to analyze the interaction between corporate headquarters' investment and incentive policies. Winner-picking, i.e. the efficient reallocation of scarce resources in an internal...

A multi-divisional firm can engage in quot;winner-pickingquot; to redistribute scarce funds efficiently across divisions. But there is a conflict between rewarding winners (investing) and producing resources with which to reward winners (incentives). Managers in winning divisions are tempted to...

This note points out the differences between conducting several projects within one big firm (common ownership) and conducting each project within an independent firm (separate ownership).