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The tournament model has the feature that executive compensation depends on the wages paid to workers at lower levels of the corporate hierarchy. The agency model shows that compensation based on firm performance is a means by which incentives can be provided to executives once a promotion tournament has been resolved. In this paper, we combine aspects of both models and show that the existence of an outsider who monitors the firm's activities will lower the sensitivity of pay to firm performance for top executives and reduce the importance of tournament-based incentives. Using panel data for 56 Japanese electronics firms, we find support for the notion that bank-appointed Board members help monitor top executives and that tournament considerations are a particularly important feature of executive compensation in Japan.

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On the basis of household-level scanner data (homescan) for Japan over a three-year period, we construct a household-level price index, and we investigate the causes of the differences in prices across households. As noted by Aguiar and Hurst (2007), large price differentials across households are observed. The differences across age and income groups, however, are small. In addition, we find that elderly people face higher prices than younger people, which is opposite of the results of Aguiar and Hurst (2007). The most important determinant of the price level is the reliance on bargain sales; an increase in the purchase at bargain sales by one standard deviation decreases the price level by more than 0.9%, while the shopping frequency has only limited effects on the price level.

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