Optimal Compensation and Pay-Performance Sensitivity in a Continuous-Time Principal-Agent Model

• 成果类型: Article
• 署名作者: Ju, Nengjiu; Wan, Xuhu
• 署名单位: Hong Kong University of Science & Technology; Shanghai Jiao Tong University; Hong Kong University of Science & Technology
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1110.1417
• 发表日期: 2012
• 页码: 641-657
• 关键词: continuous-time principal-agent models; optimal concave contract; stochastic optimal effort; PAY-PERFORMANCE SENSITIVITY

摘要

This paper studies the optimal contract between risk-neutral shareholders and a constant relative risk-aversion manager in a continuous-time model. Several interesting results are obtained. First, the optimal compensation is increasing but concave in output value if the manager is more risk averse than a log-utility manager. Second, when the manager has a log utility, a linear contract is optimal when there is no explicit lower bound on the compensation, and an option contract is optimal when there is an explicit lower bound. Third, optimal effort is stochastic (state dependent). Fourth, consistent with empirical findings and contrary to standard agency theory predictions, the relationship between pay-performance sensitivity and firm performance and that between pay-performance sensitivity and firm risk can be nonmonotonic.