In a standard principal-agent model, we derive a new condition that relates the structure of the optimal contract to the agent's risk preferences: The optimal contract is more convex than the likelihood ratio of the performance measure if and only if the coefficient of absolute prudence is...

A firm that must decide whether to retain or terminate a manager can rely on several sources of information to assess managerial ability. When it relies on a performance signal and monitoring, we show that a more informative signal can surprisingly increase the value of monitoring. Then, signal...

How to incentivize a manager to create value and be socially responsible? A manager can predict how his decisions will affect measures of social performance, and will therefore game an incentive system that relies on these measures. Still, we show that the compensation contract uses measures of...

The informativeness principle demonstrates qualitative benefits to increasing signal precision. However, it is difficult to quantify these benefits -- and compare them against the costs of precision -- since we typically cannot solve for the optimal contract and analyze how it changes with...

We study the implications of ESG ratings, which are third-party measures of corporate ESG performance, in a principal-agent model with a socially conscious board. The introduction of sufficiently high-quality ESG ratings changes corporate governance arrangements such that the board optimally...

We introduce two dimensions of uncertainty, about the upside and the downside of an asset, in a model of asset valuation under asymmetric information. The model justifies capital structures with equity and risky debt for information revelation purposes. When investors are more informed about the...

We consider a standard principal-agent setting where the first-order approach to the effort choice problem applies. We decompose the effect of a change in the probability distribution of performances on the form of the optimal contract into three additive components. We also consider the...