This paper seeks to characterize incentive compensation in a static principal-agent moral hazard setting in which both the principal and the agent are prudent (or downside risk averse). We show that optimal incentive pay should then be `approximately concave' in performance, the approximation...

In multiple-task agency setups, it is commonly accepted that wage incentives must be weaker when the agent's performance on some of the activities is difficult to measure. This paper shows that stronger incentives can be restored through a scheme of selective audits, in which the appraisal of...