This paper studies the problem of how to delegate the allocation of finite resources across multiple categories to an agent who has better information on their benefits. It focuses on a tractable, natural class of delegation policies that impose a floor or cap on the allocation to each category, a generalization of Holmström’s (1977) “interval controls” to multidimensional settings. The paper c...

Real options theory frequently assumes that investment decisions are directly taken by the owners or that, if there is a manager, he is fully aligned with them. However, empirical literature demonstrates that managers may reveal misaligned interests, which may deteriorate the value of the firm, consequently having a major impact on value maximizing decisions, namely, on the optimal timing to in...

We consider a dynamic model in which shareholders delegate a manager, who observes private information about running and liquidation costs of the firm, to operate the firm. We analytically derive the shareholders’ optimal contract contingent on the cost structure of the firm. The information asymmetries change the high-cost firm’s default and liquidation timing. Even if the liquidation value is...

We present a dynamic model of an IPO market in which firms go public to raise capital for investment. The original shareholders have inside information with respect to the quality of their firm’s investment opportunities, and they decide whether to go public, how much capital to raise and invest, and how to price the IPO. Outside investors are of one of two types: some investors know and unders...

A principal sequentially delegates project adoption decisions to an agent, who can assess project quality but has lower standards than the principal. In equilibrium, the principal allows bad projects in the future to incentivize the agent to be selective today. The optimal contract, termed Dynamic Capital Budgeting, comprises two regimes. First, the principal provides an expense account to fund...

I model inefficient resource allocations in M-form organizations due to influence activities by division managers that skew capital budgets in their favor. Corporate headquarters receives two types of signals about investment opportunities: private signals that can be distorted by managers, and public signals that are undistorted but noisy. Headquarters faces a tradeoff between the cost of atta...