Incentives for Research Agents: Optimal Contracts and Implementation

Yaping Shan ()
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Yaping Shan: School of Economics, University of Adelaide

No 2013-20, School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

Abstract: We study the agency problem between a firm and its research employees. In a multi-agent contracting setting, we show explicitly the way in which the optimal incentive regime is a function of how agents' efforts interact with one another: relative-performance evaluation is used when their efforts are substitutes whereas joint-performance evaluation is used when their efforts are complements. We also provide an implementation of the optimal contract, in which a primary component of the agents' compensation is a risky security. This implementation gives a theoretical justification for the wide-spread use of stock-based compensation by firms that rely on R&D.

Keywords: Dynamic Contract; Repeated Moral Hazard; Multi-agent Incentive; R&D; Employee Compensation (search for similar items in EconPapers)
JEL-codes: D23 D82 D86 J33 L22 O32 (search for similar items in EconPapers)
Pages: 50 pages.
Date: 2013-11
New Economics Papers: this item is included in nep-cta, nep-hrm, nep-ino, nep-knm and nep-ppm
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Persistent link: https://EconPapers.repec.org/RePEc:adl:wpaper:2013-20

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