Search Results

Showing results 1 to 2 of approximately 2.

(refine search)
SORT BY: PREVIOUS / NEXT
Author:He, Zhiguo 

Working Paper
Optimal Long-Term Contracting with Learning
We introduce uncertainty into Holmstrom and Milgrom (1987) to study optimal long-term contracting with learning. In a dynamic relationship, the agent's shirking not only reduces current performance but also increases the agent's information rent due to the persistent belief manipulation effect. We characterize the optimal contract using the dynamic programming technique in which information rent is the unique state variable. In the optimal contract, the optimal effort is front-loaded and decreases stochastically over time. Furthermore, the optimal contract exhibits an option-like feature in that incentives increase after good performance. Implications about managerial incentives and asset management compensations are discussed.
AUTHORS: He, Zhiguo; Wei, Bin; Yu, Jianfeng; Gao, Feng
DATE: 2016-11-01

Working Paper
Uncertainty, risk, and incentives: theory and evidence
Uncertainty has qualitatively different implications than risk in studying executive incentives. We study the interplay between profitability uncertainty and moral hazard, where profitability is multiplicative with managerial effort. Investors who face greater uncertainty desire faster learning, and consequently offer higher managerial incentives to induce higher effort from the manager. In contrast to the standard negative risk-incentive trade-off, this "learning-by-doing" effect generates a positive relation between profitability uncertainty and incentives. We document empirical support for this prediction.
AUTHORS: He, Zhiguo; Li, Si; Wei, Bin; Yu, Jianfeng
DATE: 2013

FILTER BY year

FILTER BY Content Type

FILTER BY Author

Wei, Bin 2 items

Yu, Jianfeng 2 items

Gao, Feng 1 items

Li, Si 1 items

FILTER BY Jel Classification

D8 1 items

D86 1 items

M12 1 items

FILTER BY Keywords

PREVIOUS / NEXT