We study a team whose members choose a joint project and exert individual efforts to implement it. Members have private information about the productivities of alternative projects. We find conditions under which information fails to be shared and the most productive project fails to be selected. While the concealment of information can be efficient, the team’s incentive to conceal is inefficie...

Many people contribute to public goods but stop doing so once they experience free riding. We test the hypothesis that groups whose members know that they are composed only of “likeminded” cooperators are able to maintain a higher cooperation level than the most cooperative, randomly composed groups. Our experiments confirm this hypothesis. We also predict that groups of “like-minded” free ride...

We take the hierarchical resource allocation model in Van Zandt (2003a) and derive a simpler, reduced-form model of balanced hierarchies. This model uses continuous approximations; we derive bounds on the errors due to these approximations. We then give results that indicate that optimal hierarchies in the general model of are approximately balanced. In particular, we show that aggregation shou...

For what kind of intermediate input/service do firms often go outsourcing? This paper develops a model of two-stage production in which economies of scope are central to the production of both the intermediate and final good. The model is able to explain the patterns of outsourcing from the degree of product differentiation, economies of scope, and economies of scale in production of the interm...

Risk-Taking Tournaments: Theory and Experimental Evidence We study risk-taking behavior in a simple two person tournament in a theoretical model as well as a laboratory experiment. First, a model is analyzed in which two agents simultaneously decide between a risky and a safe strategy and we allow for all possible degrees of correlation between the outcomes of the risky strategies. We show that...

Contracts within governance classes, e.g. alliances or supply chain contracts, display a great degree of variation in contractual design. Different propositions have been advanced on the influence of repeated interactions on contractual complexity. In this paper, we explore the alignment between provisions in functional classes and the underlying transaction attributes. The transaction cost imp...

We analyze the optimal contract to finance the series of investments of a growing firm. The analysis is based on the need to repeatedly raise funds when informed insiders can expropriate outside investors. The optimal contract can be implemented by a sequence of one-period debt contracts and equity ownership by outsiders. Debt is optimal, as it reduces the expected cost of auditing, while parti...

Explaining patterns of asset ownership is a central goal of both organizational economics and industrial organization. We develop a model of asset ownership in trucking, which we test by examining how the adoption of different classes of on-board computers (OBCs) between 1987 and 1997 in uenced whether shippers use their own trucks for hauls or contract with for-hire carriers. We Ž nd that OBC...

We analyze optimal financial contracts when the specificity of investments is endogenous. Specialization decreases the liquidation value of assets, but improves the asset’s long-term productivity. While the former is known to make financing more difficult, we show that the latter can ease financing constraints and increase financing capacity by improving an entrepreneur’s incentive to repay. Th...

Optimal Incentive Contracts under Inequity Aversion We analyze the Moral Hazard problem, assuming that agents are inequity averse. Our results differ from conventional contract theory and are more in line with empirical findings than standard results. We find: First, inequity aversion alters the structure of optimal contracts. Second, there is a strong tendency towards linear sharing rules. Thi...