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Optimal contracts with a risk-taking agent
Barron, Daniel; Georgiadis, George; Swinkels, Jeroen M. - In: Theoretical economics : TE ; an open access journal in … 15 (2020) 2, pp. 715-761
Consider an agent who can costlessly add mean-preserving noise to his output. To deter such risk-taking, the principal optimally offers a contract that makes the agent's utility concave in output. If the agent is risk-neutral and protected by limited liability, this concavity constraint binds...
Persistent link: https://www.econbiz.de/10012308620
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Robust contracting under common value uncertainty
Auster, Sarah - In: Theoretical economics : TE ; an open access journal in … 13 (2018) 1, pp. 175-204
A buyer makes an offer to a privately informed seller for a good of uncertain quality. Quality determines both the seller's valuation and the buyer's valuation, and the buyer evaluates each contract according to its worst-case performance over a set of probability distributions. This paper...
Persistent link: https://www.econbiz.de/10011855861
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Pay schemes, bargaining, and competition for talent
Lindbeck, Assar; Weibull, Jörgen W. - 2015
The paper provides a framework for analysis of remuneration to agents whose task is to make well-informed decisions on behalf of a principal, with managers in large corporations as the most prominent example. The principal and agent initially bargain over the pay scheme to the latter. The...
Persistent link: https://www.econbiz.de/10011430678
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Risk sharing contracts with private information and one-sided commitment
Hemsley, Pedro; Carrasco, Vincius; Zilberman, Eduardo - 2017
In a repeated unobserved endowment economy in which agents negotiate long-term contracts with a financial intermediary, we study the implications of the interaction between incentive compatibility and participation constraints for risk sharing. In particular, we assume that after a default...
Persistent link: https://www.econbiz.de/10010499483
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Investments and Risk Transfers
Baldenius, Tim - 2018
We demonstrate a novel link between relationship-specific investments and risk in a setting where division managers operate under moral hazard and collaborate on joint projects. Specific investments increase efficiency at the margin. This expands the scale of operations and thereby adds to the...
Persistent link: https://www.econbiz.de/10012934854
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Unexpected Costs of Performance Incentives with Production Uncertainty : Theory and Evidence from a Real-Effort Laboratory Experiment
Phipps, Aaron - 2022
Policy advocates often push for market-like performance incentives for publicly provided services such as in education or healthcare (as with Medicare in the U.S.). The evidence supporting output-based, performance incentives for such jobs is mixed at best. One possible explanation is that the...
Persistent link: https://www.econbiz.de/10014077097
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Optimal Lending Contract with Uncertainty Shocks
Villacorta, Alonso - 2014
I develop a dynamic agency model of financial contracting, where borrowing constraints appear as part of the optimal contract. The novelty of the paper relative to previous work is that volatility is stochastic and exogenous to the agent behavior. A line of credit appears in the optimal long...
Persistent link: https://www.econbiz.de/10013060348
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Testing Canonical Tournament Theory : On the Impact of Risk, Social Preferences and Utility Structure
Sheremeta, Roman M. - 2012
We use experiments to test comparative statics predictions of canonical tournament theory. Both the roles of principal … tournament design. Consistent with theory, we observed an incentive effect from raising the winner's prize. However, we also … observed several empirical puzzles that appeared to contradict theory. Controlling for social preferences did not resolve the …
Persistent link: https://www.econbiz.de/10013112121
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Testing Canonical Tournament Theory : On the Impact of Risk, Social Preferences and Utility Structure
Sheremeta, Roman M. - 2012
We use experiments to test comparative statics predictions of canonical tournament theory. Both the roles of principal … tournament design. Consistent with theory, we observed an incentive effect from raising the winner's prize. However, we also … observed several empirical puzzles that appeared to contradict theory. Controlling for social preferences did not resolve the …
Persistent link: https://www.econbiz.de/10013111204
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A Parametric Curve Analysis for the Risk-Return Tradeoff in an Agency Problem
Huang, Ke-Wei - 2011
This paper proposes a simple analysis for examining an agent's optimal decisions in a principal-agency problem. Unlike the standard approach, the target firm's expected return and risk are modeled as a parametric curve in terms of a critical business decision. A general condition is derived for...
Persistent link: https://www.econbiz.de/10013131545