Biais, Bruno; Mariotti, Thomas; Rochet, Jean-Charles; … - Département Sciences Sociales, Agriculture et … - 2010
We study a continuous-time principal-agent model in which a risk-neutral agent with limited liability must exert unobservable effort to reduce the likelihood of large but relatively infrequent losses. Firm size can be decreased at no cost or increased subject to adjustment costs. In the optimal...