Dynamic managerial compensation: A variational approach

• 成果类型: Article
• 署名作者: Garrett, Daniel F.; Pavan, Alessandro
• 署名单位: Universite de Toulouse; Universite Toulouse 1 Capitole; Toulouse School of Economics; Northwestern University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2015.04.004
• 发表日期: 2015
• 页码: 775-818
• 关键词: Incentives; dynamic mechanism design; adverse selection; moral hazard; Persistent productivity shocks; risk aversion

摘要

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. (C) 2015 Elsevier Inc. All rights reserved.