Dynamic Principal-Multiple Agent Contracts

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Dynamic Principal-Multiple Agent Contracts

Author Info

Sevin Yeltekin (Dept. of Economics, Stanford University)

Abstract

I explore the nature of optimal static and dynamic contracts in an environment with moral hazard, where individuals contracting with the same principal receive correlated productivity shocks. The environment resembles the one considered in relative compensation theory ( i.e tournament theory), but extends this theory by solving for the optimal static and dynamic contracts in this setting. I compute and analyze \emph{independent} (each worker's compensation depends only on her output) and relative contracts (each worker's compensation depends on the xoutputs of all workers contracting with the same principal). Results imply that the optimal static relative contract is not substantially different from the optimal static independent contracts. However, the dynamic relative contract displays a strong a tournament feature; the contract gives the highest compensation to the worker who produces more than her counterparts and the lowest compensation to the least productive worker. I also characterize the stochastic processes for consumption and effort implied by dynamic contracts, and study the age-earnings profiles of the workers.

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Publisher Info
Paper provided by EconWPA in its series Computational Economics with number 9807001.

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Length: 34 pages
Date of creation: 18 Jul 1998
Date of revision:
Handle: RePEc:wpa:wuwpco:9807001

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Find related papers by JEL classification:
C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

This paper has been announced in the following NEP Reports:

NEP-ALL-1998-10-02 (All new papers)
NEP-MIC-1998-10-02 (Microeconomics)

References listed on IDEAS
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.:

Spear, Stephen E & Srivastava, Sanjay, 1987. "On Repeated Moral Hazard with Discounting," Review of Economic Studies, Blackwell Publishing, vol. 54(4), pages 599-617, October. [Downloadable!] (restricted)

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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.)

Edward S. Prescott, 1999. "A primer on moral-hazard models," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 47-78. [Downloadable!]

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