This article extends the economic theory of agency to a simple class of multiperiod situations. In this context we study the role of long-term contracts in controlling moral hazard problems. We characterize the optimal long-term contract, and show that even when the "environment" is separable over time, the agent's compensation in one period will depend on his performance in that period and his performance in the prior periods.
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Volume (Year): 14 (1983) Issue (Month): 2 (Autumn) Pages: 441-452 Download reference. The following formats are available: HTML
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Flavio Toxvaerd, 2004.
"Time of the Essence,"
Discussion Paper Series
dp358, Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem.
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