Informal authority in organizations

We assert that decision rights in organizations are not contractible:the boss can always overturn a subordinate's decision, so formalauthority resides only at the top. Although decision rightscannot be formally delegated, they might be informally delegatedthrough self-enforcing relational contracts. We examine thefeasibility of informal authority in two informational environments.We show that different information structures produce differentdecisions not only because different information is broughtto bear in the decision-making process, but also because differentinformation creates different temptations to renege on relationalcontracts. In addition, we explore the implications of formaldelegation achieved through divestitures.     

Modeling term structures of defaultable bonds

This article presents convenient reduced-form models of thevaluation of contingent claims subject to default risk, focusingon applications to the term structure of interest rates forcorporate or sovereign bonds. Examples include the valuationof a credit-spread option.