Payoff Implications of Incentive Contracting

Résumé

In the context of a canonical agency model, we study the payo implications of introducing optimally-structured incentives. We do so from the perspective of an analyst who does not know the agent's preferences for responding to incentives, but does knowthat the principal knows them. We provide, in particular, tight bounds on the principal's expected benet from optimal incentive contracting across feasible values of the agent's expected rents. We thus show how economically relevant predictions can be made robustly given ignorance of a key primitive.