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Optimal contracts for research agents

Author

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  • Yaping Shan

Abstract

We study the agency problem between a firm and its research employees under several scenarios characterized by different R&D unit setups. In a multiagent dynamic contracting setting, we describe the precise pattern of the optimal contract. We illustrate that the optimal incentive regime is a function of how agents' efforts interact with one another; relative performance evaluation is used when their efforts are substitutes whereas joint performance evaluation is used when their efforts are complements. The optimal contract pattern provides a theoretical justification for the compensation policies used by firms that rely on R&D.
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Suggested Citation

  • Yaping Shan, 2017. "Optimal contracts for research agents," RAND Journal of Economics, RAND Corporation, vol. 48(1), pages 94-124, March.
    • Handle: RePEc:bla:randje:v:48:y:2017:i:1:p:94-124
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    File URL: http://hdl.handle.net/10.1111/rand.2017.48.issue-1
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    Citations

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    Cited by:

    1. Qi Luo & Romesh Saigal, 2020. "Dynamic Multiagent Incentive Contracts: Existence, Uniqueness, and Implementation," Mathematics, MDPI, vol. 9(1), pages 1-17, December.
    2. Liang, Yong & Sun, Peng & Tang, Runyu & Zhang, Chong, 2023. "Efficient resource allocation contracts to reduce adverse events," Other publications TiSEM 0bcf44d9-d0ac-4231-beaf-8, Tilburg University, School of Economics and Management.
    3. Luo, Qi & Saigal, Romesh & Chen, Zhibin & Yin, Yafeng, 2019. "Accelerating the adoption of automated vehicles by subsidies: A dynamic games approach," Transportation Research Part B: Methodological, Elsevier, vol. 129(C), pages 226-243.
    4. Shenzhe Jiang & Junjie Xia & Jiajun Xu & Jianye Yan, 2023. "A theory of National Development Bank: long-term investment and the agency problem," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(3), pages 995-1024, October.
    5. Shan, Yaping, 2019. "Incentives for research agents and performance-vested equity-based compensation," Journal of Economic Dynamics and Control, Elsevier, vol. 102(C), pages 44-69.
    6. Sofia Moroni, 2019. "Experimentation in Organizations," Working Paper 6631, Department of Economics, University of Pittsburgh.
    7. Feng Tian & Peng Sun & Izak Duenyas, 2021. "Optimal Contract for Machine Repair and Maintenance," Operations Research, INFORMS, vol. 69(3), pages 916-949, May.
    8. Peng Sun & Feng Tian, 2018. "Optimal Contract to Induce Continued Effort," Management Science, INFORMS, vol. 64(9), pages 4193-4217, September.

    More about this item

    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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