Only Time Will Tell: A Theory of Deferred Compensation

• 成果类型: Article
• 署名作者: Hoffmann, Florian; Inderst, Roman; Opp, Marcus
• 署名单位: Erasmus University Rotterdam; Erasmus University Rotterdam - Excl Erasmus MC; KU Leuven; Goethe University Frankfurt; Centre for Economic Policy Research - UK; Stockholm School of Economics
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1093/restud/rdaa043
• 发表日期: 2021
• 页码: 1253-1278
• 关键词: Moral hazard; security design; INFORMATION; securitization; RENEGOTIATION; incentives

摘要

This article characterizes optimal compensation contracts in principal-agent settings in which the consequences of the agent's action are only observed over time. The optimal timing of pay trades off the costs of deferred compensation arising from the agent's relative impatience and potential consumption smoothing needs against the benefit of exploiting additional informative signals. By capturing this information benefit of deferral in terms of the likelihood ratio dynamics, our characterization covers general signal processes in a unified setting. With bilateral risk neutrality and agent limited liability, optimal contracts are high-powered and stipulate at most two payout dates. If the agent is additionally risk-averse, payouts are contingent on performance exceeding a hurdle that is increasing over time. We obtain clear-cut predictions on how the duration of optimal compensation depends on the nature of information arrival as well as agent characteristics and derive implications for the maturity structure of securities in financial contracting settings.