Bait Contracts

Marie-Louise Vierø ()

No 1212, Working Papers from Queen's University, Department of Economics

Abstract: The granting of stock options to employees who have negligible impact on company performance intuitively violates Holmstrom's (1979) sufficient statistic result. This paper revisits the sufficient statistic question of when to condition a contract on an outside signal in a principal-agent model in which I introduce imprecise (or vague) information. The paper applies a choice theoretic framework introduced in Olszewski (2007) and Ahn (2008) and extended by Viero (2009a), who denoted it vague environments. I show that if the signal is vague, Holmstrom's result can be overturned.

Keywords: contracts; vagueness; optimism; incentives; signals; stock options (search for similar items in EconPapers)
JEL-codes: D82 D80 D20 D86 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-cta
Date: 2009-08

Downloads: (external link)
http://www.econ.queensu.ca/working_papers/papers/qed_wp_1212.pdf First version 2009 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:qed:wpaper:1212

Access Statistics for this paper

More papers in Working Papers from Queen's University, Department of Economics
Contact information at EDIRC.
Series data maintained by Mark Babcock ().