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:	2004-06-22
Authors:	Racionero, Maria ; Quiggin, John
Institutions:	School of Economics, University of Queensland
Subject:	state-contingent production \| moral hazard \| principal agent problem \| Financial Economics \| Production Economics

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Extent:	application/pdf
Series:	Risk and Sustainable Management Group Working Papers.
Type of publication:	Book / Working Paper
Notes:	The text is part of a series School of Economics>Risk and Sustainable Management Group Working Papers Number 151165
Source:	RePEc - Research Papers in Economics

Persistent link: https://ebvufind01.dmz1.zbw.eu/10010910988