IPO firms with high-powered CEO incentive contracts have lower failure rates in the aftermarket. Economically, an interquartile change in the distribution of CEO pay translates in a reduction of the failure risk probability by approximately 21%. The Pay Gap between the CEO and its subordinate...

This monograph presents existing and new research on three approaches to multiagent incentives: simpler mechanisms, robust mechanisms, and implicit contracts. The goal of all three approaches is to find theories that better explain observed institutions than the standard approach has

Traditional finance theory suggests that riskier investments should yield higher returns. Challenging this notion, anecdotal and empirical evidence suggests that highly-incented managers may take on excessive risk, leading to greater losses, while other theoretical research argues that high...

Using the pay gap between a firm’s CEO and the highest-paid CEO among similar competing firms to conceptualize the prize of winning external promotion tournaments, we document a positive relationship between external tournament incentives (ETIs) and IPO underpricing – a proxy of the cost of...

We provide new evidence that equity incentives can have perverse effects on firm value. Conditioning the relationship between chief executive officer (CEO) incentives and the risk exposure generated by corporate policy decisions on how risk is expected to affect firm value, we find that delta...

I study the effect of task difficulty on workers' effort. I find that task difficulty has an inverse-U effect on effort and that this effect is quantitatively large, especially when compared to the effect of conditional monetary rewards. Difficulty acts as a mediator of monetary rewards:...

It is often claimed that (i) managers work too hard on operational issues and do not spend enough effort on strategic activities and (ii) something can be done about this by introducing nonfinancial performance measures as for instance with a balanced scorecard. We give an explanation for both...

By enriching a principal-agent model it is shown that the introduction of monetary incentives may reduce an agent's motivation. In a first step, we allow for the possibility that some agents stick to unverifiable agreements. The larger the fraction of reliable agents, the lower powered will then...

This paper analyzes optimal incentive contracts for information acquisition and revelation. A decision maker faces the problem to design a contract that provides an expert with incentives to acquire and reveal information. We show that it is in general not optimal to reward the expert if his...

When two or more agents compete for a bonus and the agents' productivity in each of several possible occurrences depends stochastically on (constant) effort, the number of times that are checked to assign the bonus affects the level of un-certainty in the selection process. Uncertainty, in turn,...