On the Performance of Linear Contracts

Arup Bose, Debashis Pal () and David Sappington

Journal of Economics & Management Strategy, 2011, vol. 20, issue 1, 159-193

Abstract: We examine the ability of linear contracts to replicate the performance of optimal unrestricted contracts in the canonical moral hazard setting with a wealth constrained, risk averse agent. We find that in a broad class of environments, the principal can always secure with a linear contract at least 95% of the profit that she secures with an optimal unrestricted contract, provided the productivity of the agent's effort is not too meager.

Date: 2011
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https://doi.org/10.1111/j.1530-9134.2010.00286.x

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Working Paper: On the Performance of Linear Contracts (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:20:y:2011:i:1:p:159-193

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