This paper develops a theory which investigates how firms’ choice of corporate organization is affecting firm performance and the nature of competition in international markets. We develop a model in which firms’ organisational choices determine heterogeneity across firms in size and productivity in the same industry. We then incorporate these organisational choices in a Krugman cumMelitz and O...

We examine the effect of relationship-specific investment on the use of detailed contracts using data on transactions from a survey of Romanian firms. In those transactions, seller relationship-specific investment increases the amount of contractual detail, while buyer relationship-specific investment decreases it. We interpret these results using a hostages model applied to cash-flow and credi...

This paper offers an explanation why a principal may demand too much paperwork from a subordinate: Due to limited liability and moral hazard a principal is unable to appropriate all rents. Internal paperwork allows a more accurate monitoring of the agent and enables the principal to appropriate a larger part of the agent’s rent. In her decision the principal disregards the agent’s cost increase...

Trust as a Signal of a Social Norm and the Hidden Costs of Incentive Schemes An explanation for motivation crowding-out phenomena is developed in a social preferences framework. Besides selfish and fair or altruistic types a third type of agents is introduced: These ‘conformists' have social preferences if they believe that sufficiently many of the others do too. When there is asymmetric inform...

By allocating different information to team members, secret contracts can provide better incentives to perform with an intuitive organizational design. For instance, they may help to monitor monitors, and attain approximately efficient partnerships by appointing a secret principal. More generally, secret contracts highlight a rich duality between enforceability and identifiability. It naturally...

We study optimal contracting under imperfect commitment in a model with an uninformed principal and an informed agent. The principal can commit to pay the agent for his advice but retains decision-making authority. Under an optimal contract, the principal should (a) never induce the agent to fully reveal what he knows— even though this is feasible— and (b) never pay the agent for imprecise info...

The purpose of this paper is to suggest a standard method of measurement for social capital. Various authors have investigated the influence of social capital on economic growth but still social capital has not been measured in any satisfactory way. So far, each survey has used its own ad hoc methodology due to the heterogeneity of the very definition of the concept of social capital. A consens...

A perfect-competition model is developed to analyze duality in specialization and technology such as in the men’s clothing industry, an industry with highly seasonal nature of the business cycle. We show that when the market fluctuation is large enough, some firms will specialize in one good with the advantage of static efficiency, while other firms will generalize in multi-variety production a...

This paper investigates the efficiency of incomplete contracts if the investors have heterogenous preferences implying heterogenous bargaining behavior, and if these preferences are private information. In the hold-up problem, incomplete contracts cause the proceeds of the investments to be shared by bargaining. Fair-minded individuals reject positive but unfair offers even if this causes a bar...

Entrepreneurs have created a number of new Internet-based platforms that enable owners to rent out their durable goodswhen not using them for personal consumption. We develop amodel of these kinds of markets in order to analyze the determinants of ownership, rental rates, quantities, and the surplus generated in these markets. Our analysis considers both a short run, before consumers can revise...