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Robert Gibbons

Bio: Robert Gibbons is an academic researcher from Massachusetts Institute of Technology. The author has contributed to research in topics: Incentive & Wage. The author has an hindex of 59, co-authored 133 publications receiving 25511 citations. Previous affiliations of Robert Gibbons include University of Washington & University of Pennsylvania.


Papers
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Book
01 Jan 1992
TL;DR: Gibbons as discussed by the authors introduces the economic applications of game theory at least as much as the pure theory itself; formal arguments about abstract games play a minor role; the applications illustrate the process of model building, of translating an informal description of a multi-person decision situation into a formal game-theoretic problem to be analyzed.
Abstract: This book introduces one of the most powerful tools of modern economics to a wide audience: those who will later construct or consume game-theoretic models. Robert Gibbons addresses scholars in applied fields within economics who want a serious and thorough discussion of game theory but who may have found other works overly abstract. Gibbons emphasizes the economic applications of the theory at least as much as the pure theory itself; formal arguments about abstract games play a minor role. The applications illustrate the process of model building--of translating an informal description of a multi-person decision situation into a formal game-theoretic problem to be analyzed. Also, the variety of applications shows that similar issues arise in different areas of economics, and that the same game-theoretic tools can be applied in each setting. In order to emphasize the broad potential scope of the theory, conventional applications from industrial organization have been largely replaced by applications from labor, macro, and other applied fields in economics. The book covers four classes of games, and four corresponding notions of equilibrium: static games of complete information and Nash equilibrium, dynamic games of complete information and subgame-perfect Nash equilibrium, static games of incomplete information and Bayesian Nash equilibrium, and dynamic games of incomplete information and perfect Bayesian equilibrium.

1,582 citations

Journal ArticleDOI
TL;DR: In this article, the authors combine Simon's conception of relational contracts with Grossman and Hart's focus on asset ownership to analyze whether transactions should occur under vertical integration or non-integration, and with or without self-enforcing relational contracts.
Abstract: We combine Simon's conception of relational contracts with Grossman and Hart's focus on asset ownership. We analyze whether transactions should occur under vertical integration or non-integration, and with or without self-enforcing relational contracts. These four models allow us to re-run the horse race Coase proposed between markets and firms as alternative governance structures, but with four horses rather than two. We find that efficient ownership patterns are determined in part by the relational contracts that ownership facilitates, that vertical integration is an efficient response to widely varying supply prices, and that high-powered incentives create bigger reneging temptations under integration than under non-integration. Note: this paper was formerly titled "Implicit Contracts and the Theory of the Firm"

1,431 citations

Journal ArticleDOI
TL;DR: In this article, the authors develop repeated-game models showing why and how relational contracts within firms (vertical integration) differ from those between (nonintegration) and show that integration affects the parties' temptations to renege on a given relational contract, and hence affects the best relational contract the parties can sustain.
Abstract: Relational contracts—informal agreements sustained by the value of future relationships—are prevalent within and between firms. We develop repeated-game models showing why and how relational contracts within firms (vertical integration) differ from those between (nonintegration). We show that integration affects the parties' temptations to renege on a given relational contract, and hence affects the best relational contract the parties can sustain. In this sense, the integration decision can be an instrument in the service of the parties' relationship. Our approach also has implications for joint ventures, alliances, and networks, and for the role of management within and between firms.

1,311 citations

Posted Content
TL;DR: In this article, career concerns are taken into account, and the authors find that the explicit incentives from the optimal compensation contract should be strongest when a worker is close to retirement, because a longer prospective career increases the return to changing the market's belief.
Abstract: This paper studies career concerns -- concerns about the effects of current performance on future compensation -- and describes how optimal incentive contracts are affected when career concerns are taken into account Career concerns arise frequently: they occur whenever the market uses a worker's current output to update its belief about the worker's ability and competition then forces future wages (or wage contracts) to reflect these updated beliefs Career concerns are stronger when a worker is further from retirement, because a longer prospective career increases the return to changing the market's belief In the presence of career concerns, the optimal compensation contract optimizes total incentives -- the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract Thus, the explicit incentives from the optimal compensation contract should be strongest when a worker is close to retirement We find empirical support for this prediction in the relation between chief-executive compensation and stock-market performance

1,302 citations

ReportDOI
TL;DR: In this paper, the authors study optimal incentive contracts when workers have career concerns and find empirical support for this prediction in the relation between chief executive compensation and stock market performance, showing that the optimal compensation contract optimizes total incentives: the combination of the implicit incentives from career concern and the explicit incentives from the compensation contract.
Abstract: This paper studies optimal incentive contracts when workers have career concerns--concerns about the effects of current performance on future compensation. We show that the optimal compensation contract optimizes total incentives: the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract. Thus the explicit incentives from the optimal compensation contract should be strongest for workers close to retirement because career concerns are weakest for these workers. We find empirical support for this prediction in the relation between chief executive compensation and stock market performance.

1,195 citations


Cited by
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Journal ArticleDOI
TL;DR: The last two decades indicate corporate internal control systems have failed to deal effectively with these changes, especially slow growth and the requirement for exit as mentioned in this paper, which is a major challenge for Western firms and political systems as these forces continue to work their way through the worldwide economy.
Abstract: Since 1973 technological, political, regulatory, and economic forces have been changing the worldwide economy in a fashion comparable to the changes experienced during the nineteenth century Industrial Revolution. As in the nineteenth century, we are experiencing declining costs, increasing average (but decreasing marginal) productivity of labor, reduced growth rates of labor income, excess capacity, and the requirement for downsizing and exit. The last two decades indicate corporate internal control systems have failed to deal effectively with these changes, especially slow growth and the requirement for exit. The next several decades pose a major challenge for Western firms and political systems as these forces continue to work their way through the worldwide economy.

7,121 citations

Journal ArticleDOI
TL;DR: The authors demonstrate that people are motivated by both their pecuniary payoff and their relative payoff standing, and demonstrate that a simple model, constructed on the premise that people were motivated by either their payoff or their relative standing, organizes a large and seemingly disparate set of laboratory observations as one consistent pattern, which explains observations from games where equity is thought to be a factor, such as ultimatum and dictator, games where reciprocity is played a role and games where competitive behavior is observed.
Abstract: We demonstrate that a simple model, constructed on the premise that people are motivated by both their pecuniary payoff and their relative payoff standing, organizes a large and seemingly disparate set of laboratory observations as one consistent pattern The model is incomplete information but nevertheless posed entirely in terms of directly observable variables The model explains observations from games where equity is thought to be a factor, such as ultimatum and dictator, games where reciprocity is thought to play a role, such as the prisoner's dilemma and gift exchange, and games where competitive behavior is observed, such as Bertrand markets (JEL C78, C90, D63, D64, H41)

5,391 citations

Journal ArticleDOI
TL;DR: For example, the authors estimates of the pay-performance relation (including pay, options, stockholdings, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 change in shareholder wealth.
Abstract: Our estimates of the pay-performance relation (including pay, options, stockholdings, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 change in shareholder wealth. Although the incentives generated by stock ownership are large relative to pay and dismissal incentives, most CEOs hold trivial fractions of their firms' stock, and ownership levels have declined over the past 50 years. We hypothesize that public and private political forces impose constraints that reduce the pay-performance sensitivity. Declines in both the pay-performance relation and the level of CEO pay since the 1930s are consistent with this hypothesis.

4,859 citations

Book
01 Jan 1990
TL;DR: For example, the authors estimates of the pay-performance relation (including pay, options, stockholdings, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 change in shareholder wealth.
Abstract: Our estimates of the pay-performance relation (including pay, options, stockholdings, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 change in shareholder wealth. Although the incentives generated by stock ownership are large relative to pay and dismissal incentives, most CEOs hold trivial fractions of their firms' stock, and ownership levels have declined over the past 50 years. We hypothesize that public and private political forces impose constraints that reduce the payperformance sensitivity. Declines in both the pay-performance relation and the level of CEO pay since the 1930s are consistent with this hypothesis.

4,650 citations

Journal ArticleDOI
TL;DR: In this article, a survey of capital structure theories based on agency costs, asymmetric information, product/input market interactions, and corporate control considerations is presented, with a brief overview of the papers surveyed and their relation to each other.
Abstract: This paper surveys capital structure theories based on agency costs, asymmetric information, product/input market interactions, and corporate control considerations (but excluding tax-based theories). For each type of model, a brief overview of the papers surveyed and their relation to each other is provided. The central papers are described in some detail, and their results are summarized and followed by a discussion of related extensions. Each section concludes with a summary of the main implications of the models surveyed in the section. Finally, these results are collected and compared to the available evidence. Suggestions for future research are provided.

4,404 citations