Fixed wages and bonuses in agency contracts: the case of a continuous state space

In this paper, we extend the state-contingent production approach to principal-agent problems to the case where the state space is an atomless continuum. The approach is modelled on the treatment of optimal tax problems. The central observation is that, under reasonable conditions, the optimal contract may involve a fixed wage with a bonus for above-normal performance. This is analogous to the phenomenon of `bunching' at the bottom in the optimal tax literature.

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Year of publication:	2004-06
Authors:	Racionero, Maria ; Quiggin, John
Institutions:	Risk and Sustainable Management Group (RSMG), School of Economics
Subject:	state-contingent production \| moral hazard

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Extent:	application/pdf
Series:	Risk & Uncertainty Working Papers.
Type of publication:	Book / Working Paper
Notes:	Number WPR04_6
Classification:	D21 - Firm Behavior ; D82 - Asymmetric and Private Information
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008599201