Ambiguity in dynamic contracts

Arbeitspapier

I study a dynamic principal agent model in which the effort cost of the agent is unknown to the principal. The principal is ambiguity averse, and designs a contract which is robust to the worst case effort cost process. Ambiguity divides the contract into two regions. After sufficiently high performance, the agent reaches the over-compensation region, where he receives excessive benefits compared to the contract without ambiguity, while after low performance, he enters the under-compensation region. Ambiguity also causes a disconnect between the current effort cost and the strength of incentives. That is, even when the agent is under-compensated, his incentives are as strong as in the over-compensation region, since the principal fears the agent might shirk otherwise. Under ambiguity, the agent's true effort cost does not need to equal the worst-case. analyze the agent's incentives for this case, and show that the possibility of firing is detrimental to the agent's incentives. I study several extensions concerning the timing structure and the nature of the principal's ambiguity aversion.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Discussion Paper ; No. 1543

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Economics of Contract: Theory ; Personnel Economics: Compensation and Compensation Methods and Their Effects
• Thema: dynamic contract ; principal-agent model ; ambiguity aversion ; continuous time

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Szydlowski, Martin
• Ereignis: Veröffentlichung
• (wer): Northwestern University, Kellogg School of Management, Center for Mathematical Studies in Economics and Management Science
• (wo): Evanston, IL
• (wann): 2012

Weitere Informationen

• Handle: http://hdl.handle.net/10419/59661
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ