EconPapers    
Economics at your fingertips  
 

Delegation of investment decisions, and optimal remuneration of agents

Assar Lindbeck and Jörgen Weibull

European Economic Review, 2020, vol. 129, issue C

Abstract: We analyze an investor who delegates information acquisition and investment decisions to an agent. The investor cannot monitor the agent’s effort or information. Optimal pay schemes contain bonuses that increase with the net return rate of the investment, but, unlike conventional contracts, at a decreasing rate. Moreover, investments with low return rates are penalized, again unlike conventional contracts. Nevertheless, it may be optimal for the investor to reward the agent above the agent’s reservation utility. We examine the role of the agent’s risk attitude for the shape of the pay scheme, and whether firing after bad investments is a more effective threat than reduced pay. We also analyze how the nature of the contract changes if the agent is given bargaining power.

Keywords: Delegation; Principal-agent; Principal-expert; Investment; Information acquisition; Rational inattention; Contract; Bonus; Penalty; Lambert W function (search for similar items in EconPapers)
JEL-codes: D01 D82 D86 G11 G23 G30 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292120301896
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Delegation of Investment Decisions, and Optimal Renumeration of Agents (2020) Downloads
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: https://EconPapers.repec.org/RePEc:eee:eecrev:v:129:y:2020:i:c:s0014292120301896

DOI: 10.1016/j.euroecorev.2020.103559

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2022-09-25
Handle: RePEc:eee:eecrev:v:129:y:2020:i:c:s0014292120301896