Details

Autor(en) / Beteiligte

• Garrett, Daniel F.
• Pavan, Alessandro

Titel

Dynamic managerial compensation: A variational approach

Ist Teil von

• Journal of economic theory, 2015-09, Vol.159, p.775-818

Ort / Verlag

New York: Elsevier Inc

Erscheinungsjahr

2015

Link zum Volltext

Quelle

Alma/SFX Local Collection

Beschreibungen/Notizen

• We study the optimal dynamics of incentives for a manager whose ability to generate cash flows changes stochastically with time and is his private information. We show that distortions (aka, wedges) under optimal contracts may either increase or decrease over time. In particular, when the manager's risk aversion and ability persistence are small, distortions decrease, on average, over time. For sufficiently high degrees of risk aversion and ability persistence, instead, distortions increase, on average, with tenure. Our results follow from a novel variational approach that permits us to tackle directly the “full program,” thus bypassing some of the difficulties of the “first-order approach” encountered in the dynamic mechanism design literature.