Abstract
We consider the design of contracts that pay managers on the basis of a project's payoff. We show that a contract that induces appropriate timing of project investment by a privately informed risk neutral manager will not offer proper incentives to forgo perk consumption at the time of investment. Under the firm's optimal contract within the class of payments that do not depend on time of investment, the manager waits too long to invest. The optimal contract can be implemented with a call option on the project payoff.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
