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Incentives for Research Agents and Performance-vested Equity-based Compensation

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  • Yaping Shan

    (School of Economics, University of Adelaide)

Abstract

This study examines an agency problem between a firm and its research employees in a continuous-time dynamic setting. As a solution to the problem, the study presents an optimal contract and discusses its implementation. In the implementation, a primary component of the agent's compensation is a risky security, and the principal lets the agent choose the consumption and effort levels subject to a sequence of minimum holding requirements. This implementation theoretically justifies the widespread use of performance-vested equity-based compensation by firms that rely on R&D.

Suggested Citation

  • Yaping Shan, 2017. "Incentives for Research Agents and Performance-vested Equity-based Compensation," School of Economics and Public Policy Working Papers 2017-15, University of Adelaide, School of Economics and Public Policy.
    • Handle: RePEc:adl:wpaper:2017-15
    as

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    File URL: https://media.adelaide.edu.au/economics/papers/doc/wp2017-15.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Dynamic Contract; Repeated Moral Hazard; R&D; Performance-vesting Provisions; Private Saving;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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