Objective measures of performance are seldom perfect. In response, incentive contracts often include important subjective components that mitigate incentive distortions caused by imperfect objective measures. This paper explores the combined use of subjective and objective performance measures...

This paper examines common arrangements for separating control from cash flow rights: stock pyramids, cross-ownership structures, and dual class equity structures. We describe the ways in which such arrangements enable a controlling shareholder or group to maintain a complete lock on the control...

This paper studies the ability of an agent and a principal to achieve the first-best outcome when the agent invests in an asset that has greater value if owned by the principal than by the agent. When contracts can be renegotiated, a well-known danger is that the principal can hold up the agent,...

We examine commonly observed forms of payment, such as milestones, royalties, or consulting contracts as ways of engaging inventors in the development of licensed inventions. Our theoretical model shows that when milestones are feasible, royalties are not optimal unless the licensing firm is...

Studies of human memory indicate that features of an event evoke memories of prior associated contextual states, which in turn become associated with the current event's features. This mechanism allows the remote past to influence the present, even as agents gradually update their beliefs about...

We develop a simple model to study rules based on instruments vs. targets. A principal faces a better informed but biased agent and relies on joint punishments as incentives. Instrument-based rules condition incentives on the agent's observable action; target-based rules condition incentives on...

We analyze the behavior of 401(k) plan participants during the first quarter of 2020, when COVID-19 generated historic volatility, large negative returns, and significant unemployment. Only 2.1% of participants invested in TDFs made any changes to their portfolios, with even lower rates of...

We derive a measure that captures the extent to which overlapping ownership structures shift managers' incentives to internalize externalities. A key feature of the measure is that it allows for the possibility that not all investors are attentive to whether a manager's actions benefit the...

We conduct two lab experiments and one field experiment to investigate demand for consumption agency in married couples. The evidence we uncover is consistent across all three experiments. Subjects are often no better at guessing their spouse's preferences than those of a stranger, and many...

Standard models of hierarchy assume that agents and middle managers are better informed than principals about how to implement a particular task. We estimate the value of the informational advantage held by supervisors – middle managers – when ministerial leadership – the principal –...