Limited-Liability and Incentive Contracting with Multiple Projects
I examine a principal-agent model with multiple projects where a risk-neutral manager is protected by limited liability. The analysis has several interesting implications: (i) incentive problems are shown to be a natural source of economies of scope, as combining multiple projects under the management of a single manager relaxes the limited-liability constraint; (ii) as a result, managers may be overloaded with work and exert inefficiently high effort; and (iii) the analysis has implications for the optimal allocation of projects to different managers. Copyright 2001 by the RAND Corporation.
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Volume (Year): 32 (2001)
Issue (Month): 3 (Autumn)
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