Penalizing Success in Dynamic Incentive Contracts PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Penalizing Success in Dynamic Incentive Contracts PDF full book. Access full book title Penalizing Success in Dynamic Incentive Contracts by Tracy R. Lewis. Download full books in PDF and EPUB format.
Author: Tracy R. Lewis Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
We examine optimal dynamic incentive contracts when adverse selection and moral hazard problems are present. We find that early success is optimally penalized in the sense that the agent who succeeds early subsequently faces a lower- powered incentive contract. Penalizing success in this manner serves to limit the agent's initial incentive to understate his ability.
Author: Tracy R. Lewis Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
We examine optimal dynamic incentive contracts when adverse selection and moral hazard problems are present. We find that early success is optimally penalized in the sense that the agent who succeeds early subsequently faces a lower- powered incentive contract. Penalizing success in this manner serves to limit the agent's initial incentive to understate his ability.
Author: PETER O. CHRISTENSEN; GERALD A. FELTHAM; CHRISTIAN. Publisher: ISBN: 9781638280859 Category : BUSINESS & ECONOMICS Languages : en Pages : 0
Book Description
Timeliness, Accuracy, and Relevance in Dynamic Incentive Contracts examines managerial performance measures from the perspective of timeliness, accuracy, and relevance in multi-period incentive problems. The authors use a simple linear framework where managerial actions do not affect risk and compare and contrast consumption risk for a manager's preferences with single and multiple consumption dates, respectively.Both full commitment to and renegotiation of long-term contracts are considered. Under full commitment, timely and accurate information is usually relevant and desirable; the only differences arise from the modeling of managerial preferences, through the manager's consumption risk. In particular, the timeliness of performance reports can be irrelevant; then, delaying reports is desirable if it can increase their accuracy. Under renegotiation of long-term contracts, the timeliness of information release relative to renegotiation is essential. Any information released prior to renegotiation is incorporated into an ex post efficient (renegotiated) contract and is particularly useful in insuring the manager against future consumption risk. Delayed reporting destroys this insurance value and can make late reports irrelevant, independent of the modeling of managerial preferences. But timely reports can create ex ante inefficient action incentives for managers, and then accuracy can be costly as well.
Author: Boyan Jovanovic Publisher: ISBN: Category : Contracts Languages : en Pages : 0
Book Description
We analyze a long-term contracting problem involving common uncertainty about a parameter capturing the productivity of the relationship, and featuring a hidden action for the agent. We develop an approach that works for any utility function when the parameter and noise are normally distributed and when the effort and noise affect output additively. We then analytically solve for the optimal contract when the agent has exponential utility. We find that the Pareto frontier shifts out as information about the agent's quality improves. In the standard spot-market setup, by contrast, when the parameter measures the agent's 'quality', the Pareto frontier shifts inwards with better information. Commitment is therefore more valuable when quality is known more precisely. Incentives then are easier to provide because the agent has less room to manipulate the beliefs of the principal. Moreover, in contrast to results under one-period commitment, wage volatility declines as experience accumulates.
Author: Julien Prat Publisher: ISBN: Category : Languages : en Pages : 49
Book Description
We analyze a long-term contracting problem involving common uncertainty about a parameter capturing the productivity of the relationship, and featuring a hidden action for the agent. We develop an approach that works for any utility function when the parameter and noise are normally distributed and when the effort and noise affect output additively. We then analytically solve for the optimal contract when the agent has exponential utility. We find that the Pareto frontier shifts out as information about the agent's quality improves. In the standard spot-market setup, by contrast, when the parameter measures the agent's 'quality', the Pareto frontier shifts inwards with better information. Commitment is therefore more valuable when quality is known more precisely. Incentives then are easier to provide because the agent has less room to manipulate the beliefs of the principal. Moreover, in contrast to results under one-period commitment, wage volatility declines as experience accumulates.
Author: John Yiran Zhu Publisher: ISBN: Category : Languages : en Pages : 128
Book Description
I explicitly derive the optimal dynamic incentive contract in a general continuous time agency problem where inducing static first-best action is not always optimal. My framework generates two dynamic contracts new to the literature: (1) a q̀̀uiet-life" arrangement and (2) a suspension-based endogenously renegotiating contract. Both contractual forms induce a mixture of first-best and non-first-best action. These contracts capture common features in many real life arrangements such as ù̀p-or-out", partnership, tenure, hidden compensation and suspension clauses. In applications, I explore the effects of taxes, bargaining and renegotiation on optimal contracting. My technical work produces a new type of incentive scheme I call sticky incentives which underlies the optimal, infrequent-monitoring approach to inducing a mixture of first-best and non-first-best action. Furthermore, I show how differences in patience between the principal and agent factor into optimal contracting.
Author: Oddvar Kaarboe Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
Incentive contracts must typically be based on performance measures that do not exactly match the agents' true contribution to the principals' objectives. Such misalignment may pose difficulties for effective incentive design. We analyze the extent to which implicit dynamic incentives, such as career concerns and ratchet effects, alleviate or aggravate these problems. Our analysis demonstrates that the interplay between distorted performance measures and implicit incentives implies that career and ratchet effects have real effects in that stronger ratchet effects or greater distortion may increase optimal monetary incentives, and that distortion affects the optimality of different promotion rules.
Author: Tracy R. Lewis
Author: Tracy R. Lewis
Author: PETER O. CHRISTENSEN; GERALD A. FELTHAM; CHRISTIAN.
Author: Carsten Sebastian Pfeil
Author: Gaudet, Gérard
Author: Boyan Jovanovic
Author: Julien Prat
Author: Gérard Gaudet
Author: John Yiran Zhu
Author: Edward Baer Roberts
Author: Oddvar Kaarboe