Using a detailed database of managerial job descriptions, reporting relationships, and compensation structures in over 300 large U.S. firms we find that the number of positions reporting directly to the CEO has gone up significantly over time. We also find that the number of levels between the lowest managers with profit center responsibility (division heads) and the CEO has decreased and more of these managers are reporting directly to the CEO. Moreover, more of these managers are being appointed officers of the company. It does not seem that divisional heads are handling larger tasks making them important enough to report directly. Instead, our findings suggest that layers of intervening management are being eliminated and the CEO is coming into direct contact with more managers in the organization, even while managerial responsibility is being extended downwards. Consistent with this, we find that the elimination of the intermediate position of Chief Operating Officer accounts for a significant part (but certainly not all) of the increase in CEO reports. It is also accompanied with greater authority being given to divisional managers. The structure of pay is also different in flatter organizations. Pay and long term

This paper reviews our understanding of the growing open source movement. We highlight how many aspects of open source software appear initially puzzling to an economist. As we have acknowledge, our ability to answer confidently many of the issues raised here questions is likely to increase as the open source movement itself grows and evolves. At the same time, it is heartening to us how much of open source activities can be understood within existing economic frameworks, despite the presence of claims to the contrary. The labor and industrial organization literatures provide lenses through which the structure of open source projects, the role of contributors, and the movement's ongoing evolution can be viewed.

Abstract. I study a model of strategic communication between an informed Sender and an uninformed Receiver. The Sender bears a cost of lying, or more broadly, of misrepresenting his private information. The main results show that inflated language naturally arises in this environment, where the Sender (almost) always claims to be a higher type than he would under complete information. Regardless of the intensity of lying cost, there is incomplete separation, with some pooling on the highest messages. The degree of language inflation and how much information is revealed depends upon the intensity of lying cost. The analysis delivers a framework to span a class of cheap talk and verifiable disclosure games, unifying the polar predictions they make under large conflicts of interest. I apply the model to highlight how the degree of manipulability of information can affect the tradeoff between delegation and communication.

We develop a model that clari…es the respective advantages and disadvantages of academic and private-sector research. Our model assumes full protection of intellectual property rights at all stages of the development process, and hence does not rely on lack of appropriability or spillovers to generate a rationale for academic research. Instead, we focus on control-rights considerations, and argue that the fundamental tradeoff between academia and the private sector is one of creative control versus focus. By serving as a precommitment mechanism that allows scientists to freely pursue their own interests, academia can be indispensable for early-stage research. At the same time, the private sector’s ability to direct scientists towards higher-payoff activities makes it more attractive for later-stage research.

Mechanism design theory rests critically on the assumption that the principal can fully commit to the workings of the mechanism (or contract). We study a model of optimal contracting between an uninformed principal and informed agent where the principal’s commitment power is imperfect. Although the standard revelation principle is not valid without full commitment, we derive a limited version that nevertheless allows us to characterize the set of incentive feasible contracts. We show that while full revelation is feasible, it is never optimal. The optimal contract is “bang-bang” — in one region of the state space, full alignment takes place, in the other, no alignment takes place. We then compare these contracts to those in which the principal has full commitment power as well as to several “informal”institutional arrangements. JEL Classi…cation D23, D82. 1

This paper analyzes the implications of the inherent conflict between two tasks performed by direct marketing agents: prospecting for customers and advising on the product’s “suitability ” for the specific needs of customers. When structuring salesforce compensation, firms trade off the expected losses from “misselling ” unsuitable products with the agency costs of providing marketing incentives. We characterize how the equilibrium amount of misselling (and thus the scope of policy intervention) depends on features of the agency problem including: the internal organization of a firm’s sales process, the transparency of its commission structure, and the steepness of its agents’ sales incentives. (JEL M31, M37, M52) When purchasing unfamiliar products, consumers often rely on information and advice provided by representatives of the seller. This creates the possibility of “misselling, ” the questionable practice of a salesperson selling a product that may not match a customer’s specific needs. 1 This problem is particularly severe in markets for technically complex products, such as consumer electronics, auto repairs, medical care, and retail financial services including securities,

Corporations use a variety of processes to allocate capital. This article studies the benefits and costs of several common budget procedures from the perspective of a model with agency and information problems. Processes that delegate aspects of the decision to the agent result in too many projects being approved, while processes in which the principal retains the right to reject projects cause the agent to strategically distort his information about project quality. We show how the choice of a decision process depends on these two costs, and specifically on severity of the agency problem, quality of information, and project risk. Capital budgeting would be easy in a world without agency and information problems. The decision-maker would simply calculate a project’s IRR and compare it to the cost of capital. But in the real world, those providing the funds for investment must rely on self-interested agents to identify projects and provide information on expected returns. As a result, the quality of capital allocation depends on how effective the decision process is in attenuating agency problems and bringing forth accurate information.

This paper compares centralized and decentralized coordination when managers are privately informed and communicate strategically. We consider a multidivisional organization in which decisions must be adapted to local conditions but also coordinated with each other. Information about local conditions is dispersed and held by self-interested division managers who communicate via cheap talk. The only available formal mechanism is the allocation of decision rights. We show that a higher need for coordination improves horizontal communication but worsens vertical communication. As a result, decentralization can dominate centralization even when coordination is extremely important relative to adaptation.

We analyze the design of decision rules by a principal who faces an informed but biased agent and who is unable to commit to contingent transfers. The contracting problem reduces to a delegation problem in which the principal commits to a set of decisions from which the agent chooses his preferred one. We characterize the optimal delegation set and perform comparative statics on the principal’s willingness to delegate and the agent’s discretion. We also provide conditions for interval delegation to be optimal and show that they are satisfied when the agent’s preferences are sufficiently aligned. Finally, we apply our results to the regulation of a privately informed monopolist and to the design of legislatives rules.

Abstract not found