To address agents' moral hazard over effort, incentive contracts impose risk on the agents. As performance measures become noisier, the conventional agency analysis predicts that principals will reduce the incentive weights assigned to such measures. However, prior empirical results (Prendergast...

We extend Fisher, Peffer, and Sprinkle (2003) to investigate the effectiveness of a budget-based incentive contract to settings with alternate task characteristics. We first replicate their finding: when groups perform a task with an additive production function, a budget-based contract leads to...

Top management faces two key organizational design choices: (1) how much authority to delegate to lower-level managers, and (2) how to design incentive compensation to ensure that these managers do not misuse their discretion. Although theoretical accounting literature has emphasized the joint...

This study uses principal agent analysis to investigate how the principal’s use of performance measures in the agent’s compensation contract are affected by (1) links between performance measures and (2) substitute and complementary characteristics of an agent’s efforts. We show that the...

Skilled labour has gained significance as a production factor in the age of information technology, but accounting does not recognize human capital as an asset that contributes to the firm's earning power. This paper suggests a method to develop a latent index to proxy the managerial-skill...

In this paper, we investigate the role of financial incentives and social incentives in multi-task settings where the agent makes an effort level choice and an effort allocation choice. We focus on a setting where these choices are not independent and an active trade-off between effort level and...

In this paper, I extend the organizational design literature by examining how the delegation choice is affected by the ability to resolve the incentive problem caused by this delegation. Based on the seminal papers by Grossman and Hart (1986) and Holmstrom and Milgrom (1994), I argue that the...

This paper shows that in a model of managerial delegation in duopoly market structure, if the managers' salary varies with the incentive schemes offered by the owners, then the well-known results of equilibrium incentive scheme (by Fershtman and Judd, 1987, A.E.R.) get modified. In case of...

The paper Asymmetric Information, Incentives and Intrafirm Resource Allocation, by Harris, Kriebel and Raviv (H.K.R.), was published in the June 1982 issue of Management Science. In this article, written as part of this journal's 50-year anniversary celebration, we highlight the significance of...

Numerous (high-tax) countries presume that multinational firms use their transfer-pricing policies to shift profits into countries with lower tax rates. To avoid the corresponding loss in tax revenues, tax authorities develop constantly tightening rules which limit the scope of transfer-price...