Working paper

Payoff Implications of Incentive Contracting

Daniel F. Garrett

Abstract

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.

Keywords

asymmetric information, mechanism design, robustness, procurement;

JEL codes

  • D82: Asymmetric and Private Information • Mechanism Design

Reference

Daniel F. Garrett, Payoff Implications of Incentive Contracting, TSE Working Paper, n. 20-1140, September 2020.

See also

Published in

TSE Working Paper, n. 20-1140, September 2020