We propose a dynamic principal-agent model characterized by a state variable given by the agent’s initial bargaining power and by a law of motion that governs the changes of their bargaining power. Through a numerical exercise, we find that agents with the same relative risk aversion show...

We study the problem of an investor that buys an equity stake in an entrepreneurial venture, under the assumption that the former cannot monitor the latter’s operations. The dynamics implied by the optimal incentive scheme is rich and quite different from that induced by other models of...