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Payoff Implications of Incentive Contracting

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  • Garrett, Daniel

Abstract

In the context of a canonical agency model, we study the payoff implications of introducing optimally structured incentives. We do so from the perspective of an analyst who does not know the agent's preferences for responding to incentives, but does know that the principal knows them. We provide, in particular, tight bounds on the principal's expected benefit from optimal incentive contracting across feasible values of the agent's expected rents. We thus show how economically relevant predictions can be made robustly given ignorance of a key primitive.

Suggested Citation

  • Garrett, Daniel, 2020. "Payoff Implications of Incentive Contracting," CEPR Discussion Papers 14725, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14725
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    More about this item

    Keywords

    Mechanism design; Robustness; Procurement;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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