Bose, Arup ; Pal, Debashis ; Sappington, David E. M. (2011) On the performance of linear contracts Journal of Economics and Management Strategy, 20 (1). pp. 159-193. ISSN 1058-6407
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Official URL: http://onlinelibrary.wiley.com/doi/10.1111/j.1530-...
Related URL: http://dx.doi.org/10.1111/j.1530-9134.2010.00286.x
Abstract
We examine the ability of linear contracts to replicate the performance of optimal unrestricted contracts in the canonical moral hazard setting with a wealth constrained, risk averse agent. We find that in a broad class of environments, the principal can always secure with a linear contract at least 95% of the profit that she secures with an optimal unrestricted contract, provided the productivity of the agent's effort is not too meager.
| Item Type: | Article |
|---|---|
| Source: | Copyright of this article belongs to John Wiley and Sons. |
| ID Code: | 68681 |
| Deposited On: | 05 Nov 2011 05:03 |
| Last Modified: | 05 Nov 2011 05:03 |
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