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Management bonus plans in a multiple‐agent environment
Author(s) -
Callen Jeffrey L.
Publication year - 1988
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.4090090207
Subject(s) - risk aversion (psychology) , principal (computer security) , incentive , microeconomics , function (biology) , principal–agent problem , moral hazard , economics , business , computer science , mathematical economics , finance , expected utility hypothesis , computer security , corporate governance , evolutionary biology , biology
This paper analyses optimal linear incentive contracts in a single‐principal multiple‐agent setting. It is proved that the second‐best share ratios are function of the other agents' effort levels as well their degrees of risk aversion and the risk aversion of the principal. It is also shown that the total bonus pool to all agents in a difficult to monitor (decentralized) firm is greater than the total bonus pool in a easier to monitor (centralized) firm.