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Accountability in an agency model: Project selection, effort incentives, and contract design *
Author(s) -
Lukas Christian,
Neubert MaxFrederik,
Schöndube Jens Robert
Publication year - 2019
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.2989
Subject(s) - incentive , ex ante , agency (philosophy) , principal–agent problem , principal (computer security) , profit (economics) , accountability , wage , microeconomics , economics , agency cost , selection (genetic algorithm) , business , finance , computer science , labour economics , macroeconomics , political science , law , corporate governance , philosophy , epistemology , artificial intelligence , shareholder , operating system
We analyze an agency model of project choice and implementation where the agent is held accountable for his performance. We show that implementation of the ex ante efficient project may be impossible, irrespective of how the principal sets fixed wage and bonus rate. If it is possible, the principal may be forced to increase the bonus rate above the optimal project‐specific rate. The higher profit share compensates the agent for pressure he faces when he has to justify/explain his performance.