DeMARZO, PETER M.; SANNIKOV, YULIY - In: Journal of Finance 61 (2006) 6, pp. 2681-2724
We derive the optimal dynamic contract in a continuous-time principal-agent setting, and implement it with a capital structure (credit line, long-term debt, and equity) over which the agent controls the payout policy. While the project's volatility and liquidation cost have little impact on the...