Sung, Jaeyoung - In: RAND Journal of Economics 26 (1995) 4, pp. 720-743
I extend Holmstrom and Milgrom's model by allowing the agent to control privately or publicly the diffusion-rate process, and show that the optimal contract is still linear. I discuss the conditions under which conflicts over the choice of diffusion rate do and do not arise. As an application, I...