We provide an informational theory for how the ownership claims to a firm might be structured. When the market price of equity provides valuable contracting information there is a benefit to creating separate ownership claims to each of a firm's divisions. However, creating this information also generally has adverse incentive effects because it enriches the agent's strategy space. We show in a complete contracting setting that under a large class of agencies the firm is strictly better off bundling the ownership claims to divisions that are sufficiently similar and creating separate ownership claims only to divisions that are sufficiently different.

We study optimal incentives for a two‐stage production process. First, we identify conditions under which the optimal incentive structure for both workers is based on total volume and conditions for when the final stage worker’s incentives are based on relative performance. We show that a bottleneck‐free and balanced line is optimal only when both workers’ contracts are based on volume, while it becomes desirable to limit the final stage worker’s productivity when his compensation is based on relative performance. Thus, we demonstrate that the benefit of removing bottlenecks hinges critically on the structure of the optimal incentive arrangement.