This paper analyzes an agency problem where managers are able to control an unobservable variable that affects the time distribution of returns on a firm's investments. Managers have an incentive to select myopic investments in order to convince the labor market that they have relatively high ability. The authors demonstrate that, if employment terms are determined in competitive labor markets and there are lower bounds on compensations, then, at the principal's second-best contract, managers make a myopic investment choice. They also characterize the structure of the principal's second-best contract and conduct comparative statics at this solution. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 35 (1994) Issue (Month): 4 (November) Pages: 855-75 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF
For technical questions regarding this item, or to correct its listing, contact: ().
Related research
Keywords:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)