Endogenous Agency Problems and the Dynamics of Rents

Bruno Biais and Augustin Landier

The Review of Economic Studies, 2020, vol. 87, issue 6, 2542-2567

Abstract: While potentially more productive, more complex tasks generate larger agency rents. Agents therefore prefer to acquire complex skills, to earn large rents. In our overlapping generations model, their ability to do so is kept in check by competition with predecessors. Old agents, however, are imperfect substitutes for young ones, because the latter are easier to incentivize, thanks to longer horizons. This reduces competition between generations, enabling young managers to go for larger complexity than their predecessors. Consequently, equilibrium complexity and rents gradually increase beyond what is optimal for the principal and for society.

Keywords: Agency rents; Moral hazard; Dynamic contracts; Complexity; D8; G2; G3 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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