This paper analyzes the optimal use of short and long-term share prices in management incentive contracts. We assume that the short-term share price is determined even before the manager has made her effort choice and, therefore, cannot be informative in the standard principal-agent sense. We...

Raiffa (1961) has suggested that ambiguity aversion will cause a strict preference for randomization. We show that dynamic consistency implies that individuals will be indifferent to ex ante randomizations. On the other hand, it is possible for a dynamically-consistent ambiguity averse...