A recursive dynamic agency model is developed for situations where the state of nature follows a Markov process. The repeated agency model is a special case. It is found that the optimal effort depends not only on current performance but also on past performances, and the disparity between...

Why are bonus/promotion schemes so widely used in reality? Are they effective in alleviating incentive problems? For the standard agency model, this paper proposes an alternative solution to the classical solution in Holmström (1979). The advantages of our solution are that (1) it is a simple...

Cooperation among firms is governed by contracts. An interesting phenomenon is that some contracts are comprehensive while some are limited. This study tries to explain different levels of incompleteness of contracts that firms choose to govern their cooperation with. We find that a limited...