1,721,015 research outputs found
Dynamic incentive contracts with two-sided private information
No full textThe paper analyzes a dynamic regulatory model in which the regulatory policy may change over time and in particular it may become tighter. The model examines how this possibility affects the incentive scheme offered by the regulator. To this end we allow the regulator to have better information than the firm on the second-period policy. The main findings are the following. The rents necessary to induce separation are lower when there is a positive probability that the second-period policy will be tighter with a potential welfare gain. The problem of information transmission through the contract offer is more severe when the regulator has perfect information and this is common knowledge. This in turn implies that separation is less likely in this case and social welfare is smaller. Finally, social welfare may be higher in the noncommittment case than in the committment one. This is in sharp contrast with the result of the one-sided private information case
Banchieri e Buoi dei Paesi Tuoi?
No full textarticolo online pubblicato sul sito: noisefromameriKa.or
Cost Observability and renegotiation
No full textA project requires an initial specific investment. The toatl cost of the project depends on the probability that the supplier will experience a delay in the production schedule. This probability is the supplier's private information. The buyer wouls like to hire a supplier with a low probability of delay. However, it can offer a screening contract only by committing to terminate the project if the supplier is not able to complete it within the original budget limits. We show that cost observability may prevent the buyer from terminating a cost overrun project and this, in turn, prevents screening out bad suppliers. Thus, we provide an example in which superior monitoring ability represents a disadvantage for the buyer. This finding contrast with the common argument that better monitoring represents an advantage of integrated organizations
How Many Patents Does it Take to Signal Innovation Quality?
Full text linkIn this paper, we offer a novel explanation to the surge in patenting bserved during the last years. With low patentability standards at PTOs (Patent and Trademark Offices awarding so-called bad patents), not only false innovators have the chance of being granted patents but also, and more interestingly, true innovators are forced to patent more intensively trying to signal their type; however, if they are liquidity constrained, true innovators may fail to separate and this fact reduces the incentives to exert effort in R&D activities. Then, drawing on the signaling role of patents highlighted by the model, we investigate some of the proposals that have been put forward in order to mitigate the bad patents problem. We provide an intuitive condition under which a tightening of the patentability standards (raising the bar) reduces the distortions caused by bad patents. Moreover, we show that introducing a two-tiered patent system is unlikely to improve market outcomes
Severance agreements, incentives and CEO dismissal
Full text linkWe analyze how severance pay can alleviate the conflict between firing a manager and simultaneously providing him
with the incentive to exert effort before being fired. Contrary to previous literature, in our model severance pay is
contingent on firm performance. We show that severance pay contingent on firm performance can solve the conflict
by rewarding the manager only in case of investment success
Executive Compensation and Firm peformance in Italy
No full textwe use survey data to investigate the determinants of executive compensation in a sample of Italian firms. To the best of our knowledge this is the first empirical study on the compensation of Italian executives. Our key hypothesis is that the charcteristics of the Italian capital market, corporate governance and the specific relationship between banks and firms imply a low fraction of incentive pay over total compensation and a low sensitivity of incentive pay to firm performance. We find evidence that supports this hypothesis
Ownership Concentration, Monitoring and Optimal Board Structure.
No full textThe paper analyzes the optimal structure of the board of directors in a firm with a large shareholder sitting on the board. It focuses on the choice between a one-tier and a two-tier structure. In a one-tier structure the sole board performs all tasks, while in a two-tier structure the management board is in charge of project selection and the supervisory board is in charge of monitoring. We consider the case in which the large shareholder sits on (and controls) the supervisory board but not on the management board. We show that such a two-tier structure can limit the interference of the large shareholder and can restore manager's incentive to exert effort to become informed on new investment projects without reducing the large shareholder's incentive to monitor the manager. This results in higher expected profits. The difference in profits can be sufficiently high to make the large shareholder prefer a two-tier board even if this implies that the manager selects his own preferred project. The paper has interesting policy implications since it suggests that two-tier boards can be a valuable option in Continental Europe where ownership structure is concentrated
Common Agency and Exclusive Dealing in a Differentiated Duopoly
No full textThe paper analyzes whether two manufacturers competing in prices should market their products through exclusive dealers or through a common agent. Manufacturers and dealers have symmetric information. Howerver, we assume that lack of observability/verifiability of the agents' total profits prevents manufacturers from appropriating the profits that the agent obtains from rival products. We find that common agency induces more aggressive behavior than exclusive dealing when products are substitutes and more collusive behavior when products are complements. As a result, manufactirers profits are higher under exclusive dealing for substitutes products
Ownership concentration, monitoring, and optimal board structure
No full textWe analyze the choice between one-tier and two-tier board structure in a firm with a large shareholder sitting on the board. The board has two tasks: project selection and monitoring the ability of the manager. In a one-tier structure, the sole board performs all tasks. In a two-tier structure, the management board is in charge of project selection and the supervisory board is in charge of monitorin. We show that such two-tier structure can limit interference from the large shareholder and provide the manager with the incentive to exert effort to become informed on investment projects without reducing the large shareholder incentive for monitoring. This results in higher expected profits
CEO Turnover in insider dominated boards: the Italian case
No full textWe investigate CEO turnover in relationship to performance, ownership concentration and CEO ownership in sample of 60 private companies listed on the Italian Stock Exchange over the 9-year period 1988-1996
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