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Incentives for Research Agents and Performance-vested Equity-based Compensation

Yaping Shan

No 2017-15, School of Economics Working Papers from University of Adelaide, School of Economics

Abstract: This study examines an agency problem between a firm and its research employees in a continuous-time dynamic setting. As a solution to the problem, the study presents an optimal contract and discusses its implementation. In the implementation, a primary component of the agent's compensation is a risky security, and the principal lets the agent choose the consumption and effort levels subject to a sequence of minimum holding requirements. This implementation theoretically justifies the widespread use of performance-vested equity-based compensation by firms that rely on R&D.

Keywords: Dynamic Contract; Repeated Moral Hazard; R&D; Performance-vesting Provisions; Private Saving (search for similar items in EconPapers)
JEL-codes: D23 D82 D86 J33 L22 O32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hrm and nep-mic
Date: 2017-12
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