Abstract

I explicitly derive the optimal dynamic incentive contract in a standard continuoustime agency setting where the agent has a shirking action. My solution generates two dynamic contracts new to the literature. Both contracts include phases when the agent frequently shirks. In one contract, the shirking phases are relaxation periods rewarding the agent for good performance. In the other, the shirking phases are suspension-type arrangements punishing the agent for poor performance. In addition, I also explore the relationships between optimal contracting and taxes, bargaining and renegotiation.

Full Text
Published version (Free)

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 call