Abstract
The article seeks to: a) critique existing academic thought on economics of incentives and contracts, b) analyze the impact of Equity-Based Incentives (EBIs) on risk and vice versa; c) show how EBIs cause information assymmetry,and vice versa. The use of EBIs and incentives are heavily influenced by economics of transactions. The optimal incentive contract is one that minimizes the costs of compliance, minimizes the propensity to commit fraud, maximizes the after-tax cash benefits to the grantee, maximizes shareholder value before compensating grantees and most accurately matches performance and reward. Incentive contracts can reduce moral hazard, agency and compensation-accuracy problems in companies; and the rates of new-business formation and entrepreneurship have been linked to EBI tax policy.
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