Fixed Wages and Bonuses in Agency Contracts: The Case of a Continuous State Space

Maria Racionero and John Quiggin

Journal of Public Economic Theory, 2006, vol. 8, issue 5, 761-777

Abstract: In this paper, we extend the state‐contingent production approach to principal–agent problems to the case where the state space is an atomless continuum. The approach is modelled on the treatment of optimal tax problems. The central observation is that, under reasonable conditions, the optimal contract may involve a fixed wage with a bonus for above‐normal performance. This is analogous to the phenomenon of “bunching” at the bottom in the optimal tax literature.

Date: 2006
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https://doi.org/10.1111/j.1467-9779.2006.00287.x

Related works:
Working Paper: Fixed wages and bonuses in agency contracts: the case of a continuous state space (2004)
Working Paper: Fixed wages and bonuses in agency contracts: the case of a continuous state space (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jpbect:v:8:y:2006:i:5:p:761-777

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