We address the question how much authority a principal should delegate to a manager with conflicting interests and uncertain ability in a context in which the manager has both compensation-based and reputational incentives. The optimal level of authority balances the value of the manager's...

Multi-unit auctions are sometimes plagued by the so-called exposure problem. In this paper, we analyze a simple game called the "chopstick auction" in which bidders are confronted with the exposure problem. We do so both in theory and in a laboratory experiment. In theory, the chopstick auction...

We analyze a contest between two groups where group members have differing valuations for the contested rent. Generically the pivotal group member with the median valuation of the rent will not act himself but will want to send a group member that has preferences different to her own into the...

We analyze the classic moral hazard problem with the additional assumption that agents are inequity averse. The presence of inequity aversion alters the structure of optimal contracts. When the concern for equity becomes more important, there is convergence towards linear sharing rules. The...

The industrialization process of a country is often plagued by a failure to coordinate investment decisions. Using the Global Games approach we can solve this coordination problem and eliminate the problem of multiple equilibria. We show how appropriate information provision enhances efficiency....

This paper analyzes whether it might be desirable for a firm to hire an overoptimistic manager to commit to a certain R&D strategy. I consider a Cournot model with an ex-ante R&D stage where firms can invest in cost reduction before product market competition takes place. I show that firms want...

This paper analyzes a model in which owners of competing firms can hire biased managers for strategic reasons. We show that independent of the mode of competition, that is, price or quantities, owners hire aggressive managers. This result contrasts with the classic literature on strategic...

Abstract We study optimal incentive provision for “knowledge workers�, a crucial resource for many organizations. We augment a standard moral-hazard framework to reflect two key patterns: First, retention is a challenge because workers are free to leave; thereby harming their...

Abstract There is ample empirical evidence indicating that a substantial fraction of the population exhibits social preferences. Recent work also shows that social preferences influence the effectiveness of incentives in labor relations. Hence, when making contracting decisions, employers should...

We analyze the profitability of third degree price discrimination under consideration of consumers' fairness concerns within an experiment and explain the results within a theoretical framework. We find that with an increase in the price differential negative reciprocal reactions by...