We study the efficiency of negotiated transfer pricing for solving a bilateral hold-up problem in a multinational enterprise. We show that negotiated transfer pricing will generally not provide incentives for an efficient renegotiation of the initial contract and efficient investments because...

We study the efficiency of the negotiated transfer pricing mechanism proposed by Edlin and Reichelstein (1995) for solving a bilateral holdup problem in a multinational enterprise. Our main finding is that the proposed renegotiation procedure will generally not provide incentives for efficient...

We demonstrate a novel link between relationship-specific investments and risk in a setting where division managers operate under moral hazard and collaborate on joint projects. Specific investments increase efficiency at the margin. This expands the scale of operations and thereby adds to the...

We study how interest alignment between CEOs and corporate boards affects investment efficiency. The model entails a CEO who encounters an investment project and decides either or not to present it for approval to a board of directors. The CEO may need to collect and report investment-relevant...

We study how interest alignment between CEOs and corporate boards influences investment efficiency and identify a novel force behind the benefit of misaligned preferences. Our model entails a CEO who encounters a project, gathers investment-relevant information, and decides whether or not to...

In their role as initiators of new business projects, CEOs have an advantage over access to and control over project-related information. This exacerbates pre-existing agency frictions and may lead to investment inefficiencies. To counteract this challenge, incentive compensation for corporate...