Incentives and standards in agency contracts

Chambers, R.G. and Quiggin, J. C. (2005) Incentives and standards in agency contracts. Journal of Public Economic Theory, 7 2: 201-228.

Author Chambers, R.G.
Quiggin, J. C.
Title Incentives and standards in agency contracts
Journal name Journal of Public Economic Theory   Check publisher's open access policy
ISSN 1097-3923
Publication date 2005
Sub-type Article (original research)
Volume 7
Issue 2
Start page 201
End page 228
Total pages 28
Editor J.P. Conley
M.H. Wooders
Place of publication US
Publisher Blackwell
Collection year 2005
Subject C1
340103 Mathematical Economics
720299 Microeconomic issues not elsewhere classified
Abstract This paper studies the structure of state-contingent contracts in the presence of moral hazard and multitasking. Necessary and sufficient conditions for the presence of multitasking to lead to fixed payments instead of incentive schemes are identified. It is shown that the primary determinant of whether multitasking leads to higher or lower powered incentives is the role that noncontractible outputs play in helping the agent deal with the production risk associated with the observable and contractible outputs. When the noncontractible outputs are risk substitutes and are socially undesirable, standards are never optimal. If the noncontractible outputs are socially desirable, standards are never optimal if the noncontractible outputs play a risk-complementary role.
Q-Index Code C1

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Created: Wed, 15 Aug 2007, 07:33:54 EST