Search

This paper develops a contest model of a professional sports league in which clubs maximize a weighted sum of profits and wins (utility maximization). The model analyzes how more win-oriented behavior of certain clubs affects talent investments, competitive balance, and club profits. Moreover, in contrast to traditional models, the authors show that revenue sharing does not always reduce investment incentives due to the dulling effect. The authors identify a new effect of revenue sharing called the ‘‘sharpening effect.’’ In the presence of the sharpening effect (dulling effect), revenue sharing enhances (reduces) investment incentives and improves (deteriorates) competitive balance in the league.

This paper investigates the merger wave hypothesis for the US and the UK employing a Markov regime switching model. Using quarterly data covering the last thirty years, for the US, we identify the beginning of a merger wave in the mid 1990s but not the much-discussed 1980s merger wave. We argue that the latter finding can be ascribed to the refined methods of inference offered by the Gibbs sampling approach. As opposed to the US, mergers in the UK exhibit multiple waves, with activity surging in the early 1970s and the late 1980s.

In this paper, we use a continuous-time contingent claims framework to study managers' incentives to cheat in the presence of equity-based compensation policies. When we consider a fully predictable legal process, we observe that managers will always have incentives to engage in illicit activities. The exercise of the option to cheat will be postponed if the corruption costs or if the manager's reputational loss increases. We further show that managers incentives to cheat are delayed and can even be eliminated when the legal settlement date is non-predictable. An important result is that managers will always cheat sooner with stock options than with a cash equivalent remuneration consisting of stocks. Finally, we propose a new remuneration package that consists of both long calls and short puts written on the firm's stocks in order to reduce managers incentives to cheat.