Optimal Incentive Contracts under Moral Hazard When the Agent is Free to Leave
We characterize optimal incentive contracts in a moral hazard framework extended in two directions. First, after effort provision, the agent is free to leave and pursue some ex-post outside option. Second, the value of this outside option is increasing in effort, and hence endogenous. Optimal contracts may entail properties such as inducing first-best effort and surplus, or non-responsiveness with respect to changes in verifiable parameters. Moreover, while always socially inefficient, separation might occur in equilibrium. Except for the latter, these findings are robust to renegotiation. When the outside option is exogenous instead, the standard results obtain.
|Date of creation:||Jul 2010|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
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.:
- Hvide, Hans K. & Kristiansen, Eirik G., 2006.
"Management of Knowledge Workers,"
2006/7, Department of Business and Management Science, Norwegian School of Economics.
- Kräkel, Matthias & Sliwka, Dirk, 2006.
"Should You Allow Your Agent to Become Your Competitor? On Non-Compete Agreements in Employment Contracts,"
Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems
99, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Matthias Kräkel & Dirk Sliwka, 2006. "Should You Allow Your Agent to Become Your Competitor? -- On Non-Compete Agreements in Employment Contracts," Bonn Econ Discussion Papers bgse4_2006, University of Bonn, Germany.
- Kräkel, Matthias & Sliwka, Dirk, 2006. "Should You Allow Your Agent to Become Your Competitor? On Non-Compete Agreements in Employment Contracts," IZA Discussion Papers 2054, Institute for the Study of Labor (IZA).
- Rasul, Imran & Sonderegger, Silvia, 2010.
"The role of the agent's outside options in principal-agent relationships,"
Games and Economic Behavior,
Elsevier, vol. 68(2), pages 781-788, March.
- Imran Rasul & Silvia Sonderegger, 2008. "The Role of the Agent's Outside Options in Principal-Agent Relationships," Bristol Economics Discussion Papers 08/605, Department of Economics, University of Bristol, UK.
- Nick Netzer & Florian Scheuer, 2010.
"Competitive Markets without Commitment,"
Journal of Political Economy,
University of Chicago Press, vol. 118(6), pages 1079 - 1109.
- Anton, James J & Yao, Dennis A, 1995. "Start-ups, Spin-offs, and Internal Projects," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(2), pages 362-78, October.
- Isabelle Huault & V. Perret & S. Charreire-Petit, 2007. "Management," Post-Print halshs-00337676, HAL.
- O'Flaherty, B. & Siow, A., 1990.
"Up or Out Rules in the Market for Lawers,"
University of Chicago - Economics Research Center
90-10, Chicago - Economics Research Center.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:7914. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.