Uncertainty, Contracting, and Beliefs in Organizations

• 成果类型: Article
• 署名作者: Dicks, David L.; Fulghieri, Paolo
• 署名单位: Baylor University; Centre for Economic Policy Research - UK; European Corporate Governance Institute
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhaf005
• 发表日期: 2025
• 页码: 2182
• 关键词: executive-compensation; MANAGER COMPENSATION; limited-liability; STOCK-OPTIONS; moral hazard; ambiguity; performance; incentives; FIRMS; overconfidence

摘要

We study the impact of uncertainty on optimal contracting in a multidivisional firm. Headquarters contract with division managers to induce effort. Uncertainty creates endogenous disagreement, thereby aggravating moral hazard. By hedging uncertainty, headquarters design incentive contracts that reduce disagreement and lower incentive provision costs, thereby promoting effort. Because hedging uncertainty can conflict with hedging risk, optimal contracts differ from those in standard principal-agent models. Our model helps explain the prevalence of equity-based incentive contracts and the rarity of relative-performance contracts, especially in firms facing greater uncertainty.