Contracting in Peer Networks

PETER M. DEMARZO

Corresponding Author

RON KANIEL

• [email protected]

Peter DeMarzo is at Stanford University and NBER. Ron Kaniel is at the University of Rochester; FISF, Fudan; Reichman University; and CEPR. We are grateful to Shai Bernstein; Gian Luca Clementi; Florian Ederer; Willie Fuchs; Denis Gromb; Adriano Rampini; Jeff Zwiebel; and seminar and conference participants at Amherst, Baruch College, Boston University, Cheng Kong Graduate School of Business, Chinese University of Hong Kong, Drexel University, Emory, Federal Reserve Bank of New York, Frankfurt School of Finance and Management, Fudan, IDC Herzeliya, INSEAD, John Hopkins, London School of Economics, National University of Singapore, Pompeu Fabra and Barcelona GSE, Rice, Rutgers, Singapore Management University, Stanford, Stockholm School of Economics, Tel Aviv University, Tulane, University of Chicago, University of Gothenburg, University of Hong Kong, University of Houston, University of Lugano, University of Melbourne, University of Minnesota, University of Rome, University of Texas at Dallas, University of Toronto, Vienna University of Economics and Business, Washington University in St. Louis, Annual Meeting of the Western Finance Association, Utah Winter Finance Conference, Finance Theory Group conference, Luxembourg Asset Management Summit, and the Annual Meeting of the American Finance Association for helpful comments. The research leading to these results has received funding from the European Research Council under the European Union's Seventh Framework Programme (FP7/2007-2013) / ERC Grant Agreement no. 312842. Under the American Finance Association disclosure guidelines, we both have nothing to disclose. An earlier version of this paper was circulated under the title “Relative Pay for Non-Relative Performance: Keeping Up with the Joneses with Optimal Contracts.”

Correspondence: Ron Kaniel, University of Rochester, Simon School of Business, 305 Schlegel Hall, Rochester, NY 14627; e-mail: [email protected].