This paper considers optimal compensation for a CEO who is entrusted with administering corporate assets honestly. Optimal compensation designs maximize integrity at minimum cost. These designs are very “low powered,” i.e., while specifying a lower bound for performance and increasing pay...

We model and experimentally examine the board structure-performance relationship. We examine single-tiered boards, two-tiered boards, insider-controlled boards and outsider-controlled boards. We find that even insider-controlled boards frequently adopt institutionally preferred rather than...

We posit that screening IPOs requires specialized labor which is in fixed supply. A sudden increase in demand for IPO financing increases the compensation of IPO screening labor. This results in reduced screening, encouraging sub-marginal firms to enter the IPO market, further fueling the demand...

This paper embeds security design in a model of evolutionary learning. We consider a competitive and perfect financial market where agents, as in Allen and Gale (1988), have heterogeneous valuations for cash flows. Our point of departure is that, instead of assuming that agents are endowed with...

This article models the decisions of a regulated utility that has the option of meeting excess demand by buying power on the spot markets. The risk associated with the cost of meeting excess consumer demand can be hedged by trading in a financial derivatives market. We show that the optimal...

In this paper, we develop a dynamic model of institutional share dumping surrounding control events. Institutional investors sometimes dump shares, despite trading losses, in order to manipulate share prices and trigger activism by “relationship” investors. These institutional investors are...

In this paper, we develop an economic rationale for the following stylized fact: Web‐based firms spend profligately on advertising and marketing and usually lose money. Our rationale is based on the winner‐take‐all structure of high fixed cost, low marginal cost, markets for information...