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This paper asks how well different organizational structures perform in terms of generating information about investment projects and allocating capital to these projects. A decentralized approach—with small, single-manager firms—is most likely to be attractive when information about projects is " soft " and cannot be credibly transmitted. In contrast,(More)
Rose and an anonymous referee for helpful comments. We also thank Jia Liu, Ali Ahsan, Humayun Khalid and especially Sandra Nudelman for excellent research assistance. Abstract What determines CEO incentives? A confusion exists among both academics and practitioners about how to measure the strength of CEO incentives, and how to reconcile the enormous(More)
Multidivisional organizations exist primarily to coordinate the activities of their divisions. To do so efficiently, they must resolve a trade-off between coordination and adaptation: the more closely activities are synchronized across divisions, the less they can be adapted to the local conditions of each division. To the extent that division managers are(More)
We study two parties who desire a smooth trading relationship under conditions of value and cost uncertainty. A rigid contract fixing price works well in normal times since there is nothing to argue about. However, when value or cost is exceptional, one party will hold up the the other , damaging the relationship and causing deadweight losses as parties(More)
What is the role of firms and markets in mediating the division of labor? This paper uses confidential microdata from the Census of Services to examine law firms' boundaries. We first examine how the specialization of lawyers and firms increases as lawyers' returns to specialization increase. In fields where lawyers increasingly specialize with market size,(More)
This paper examines hierarchies' role in the organization of human-capital-intensive production We develop an equilibrium model of hierarchical organization, then provide empirical evidence using confidential data on thousands of law offices from the 1992 Census of Services. We show how the equilibrium assignment of individuals to hierarchical positions(More)
I examine the release date scheduling of all motion pictures that went into wide release in the US in 1995 and 1996 to investigate the effects of vertical market structure on competition. The evidence suggests that complex vertical structures involving multiple upstream or downstream firms generally do not achieve efficient outcomes in movie scheduling. In(More)
Many directors are not simply insiders or outsiders. For example , an officer of a supplier firm is neither independent nor captive of management. We use a spatial model of board decision-making to analyze bargaining among multiple types of directors. Board decisions are modeled using a new bargaining solution concept called consensus. We use consensus to(More)
Firms' equilibrium investment behavior explains two seemingly unrelated economic puzzles. Endogenous variation in firms' exposures to fundamental risks, resulting from optimal investment behavior, generates both investment-cash flow sensitivity and a countercyclical value premium. We characterize the investment strategies of heterogeneous firms explictly,(More)