Open AccessIncentives, project choice, and dynamic multitasking
Author(s) -
Szydlowski Martin
Publication year - 2019
Publication title -
theoretical economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.404
H-Index - 32
eISSN - 1555-7561
pISSN - 1933-6837
DOI - 10.3982/te2858
Subject(s) - human multitasking , moral hazard , incentive , microeconomics , equity (law) , economics , net present value , option value , continuation , value (mathematics) , payment , investment (military) , actuarial science , business , computer science , production (economics) , finance , psychology , programming language , machine learning , politics , political science , law , cognitive psychology
I study the optimal choice of projects in a continuous‐time moral hazard model with multitasking. I characterize the distortions caused by moral hazard and the dynamics of the firm's project choice. Both overinvestment and underinvestment relative to a net present value (NPV) criterion can occur on the path of the contract. As past performance increases, the firm chooses projects that require higher pay–performance sensitivity. When the continuation value is large, investment projects are chosen more efficiently, and project choice depends more on the NPV and less on the incentive costs. I implement the optimal contract with an equity stake, bonus payments, and a personal account.