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on Contract Theory and Applications |
| By: | Th\'eo Durandard; Alexis Ghersengorin |
| Abstract: | We study the robust regulation of labour contracts in moral hazard problems. A firm offers a contract to incentivise production by an agent protected by limited liability. A regulator chooses the set of permissible contracts to (i) improve efficiency and (ii) protect the worker. The regulator ignores the agent's productive actions and the firm's costs and evaluates regulation by its worst-case regret. The regret-minimising regulation imposes a linear minimum wage, allowing all contracts above this linear threshold. The slope of the minimum contract balances the worker's protection - by ensuring they receive a minimal share of the production - and the necessary flexibility for incentive provision. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.04841 |
| By: | Guillermo Alonso Alvarez; Erhan Bayraktar; Ibrahim Ekren; Liwei Huang |
| Abstract: | In this paper we study a principal-agent problem in continuous time with multiple lump-sum payments (contracts) paid at different deterministic times. We reduce the non-zero sum Stackelberg game between the principal and agent to a standard stochastic optimal control problem. We apply our result to a benchmark model for which we investigate how different inputs (payment frequencies, payments' distribution, discounting factors, agent's reservation utility) affect the principal's value and agent's optimal compensations. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.04262 |
| By: | Krishna Dasaratha; Benjamin Golub; Anant Shah |
| Abstract: | A principal uses payments conditioned on stochastic outcomes of a team project to elicit costly effort from the team members. We develop a multi-agent generalization of a classic first-order approach to contract optimization by leveraging methods from network games. The main results characterize the optimal allocation of incentive pay across agents and outcomes. Incentive optimality requires equalizing, across agents, a product of (i) individual productivity (ii) organizational centrality and (iii) responsiveness to monetary incentives. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.08026 |
| By: | Chao Huang |
| Abstract: | We study the problem of multilateral collaboration among agents with transferable utilities. Any group of agents can sign a contract consisting of a primitive contract and monetary transfers among the signatories. We propose a dynamic auction that finds a stable outcome when primitive contracts are gross complements for all participants. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.06545 |
| By: | Häfner, Samuel (University of St. Gallen); Haeusle, Niklas (University of Leipzig); Koeniger, Winfried (University of St. Gallen); Braun, Alexander (University of St. Gallen) |
| Abstract: | We develop a model in which large risk-neutral firms and individual risk-averse consumers compete to employ heterogeneous workers by posting compensation menus. Production takes time, and we analyze how screening motives interact with the desire to smooth consumption. There is a unique symmetric separating equilibrium that is also efficient. In equilibrium, the extent to which the compensation scheme delays payment until the production quality becomes known depends on whether, and to which extent, the consumers are financially constrained. We discuss how our model relates to the design of compensation schemes in current online peer-to-peer markets. |
| Keywords: | adverse selection, self selection, peer-to-peer markets, labor markets, capital market imperfections |
| JEL: | D15 D82 D86 E24 J33 M52 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17449 |