EconPapers    
Economics at your fingertips  
 

Productivity Shocks, Discount Rate and Incentives

Sonia Di Giannatale, Itza Curiel (), Juan Herrera and Katya Rodríguez
Additional contact information
Itza Curiel: Division of Economics, CIDE

No DTE 531, Working papers from CIDE, División de Economía

Abstract: In this paper we analyze a repeated Principal Agent model, formulated as a Multi-Objective Optimization problem. We approximate its Pareto Frontier by using a recently proposed Multi-Objective Optimization Evolutionary Algorithm named RankMOEA. We focus on the effects of changes of productivity shocks and discount rates on the aforementioned Pareto Frontier. Our numerical results indicate that as the discount rate increases, the Principal Agent relationship generates higher values; the spread in the Agent´s future (current) compensation between the low and high productivity shocks increases (decreases); and the Agent chooses, in general, higher effort levels. On the other hand, when the structure of productivity shocks is such that the Agent´s effort yields higher (lower) production levels, the Principal (Agent) tends to benefit because in those cases the Agent (Principal) assumes more risk.

Keywords: principal agent; Multi-Objective Optimization; productivity shocks; incentives (search for similar items in EconPapers)
JEL-codes: D24 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2012-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://cide.edu/repec/economia/pdf/DTE/DTE531.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://cide.edu/repec/economia/pdf/DTE/DTE531.pdf [301 Moved Permanently]--> http://www.cide.edu/repec/economia/pdf/DTE/DTE531.pdf [301 Moved Permanently]--> https://www.cide.edu/repec/economia/pdf/DTE/DTE531.pdf)

Related works:
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:emc:wpaper:dte531

Access Statistics for this paper

More papers in Working papers from CIDE, División de Economía Contact information at EDIRC.
Bibliographic data for series maintained by Alfonso Miranda ().

 
Page updated 2020-04-08
Handle: RePEc:emc:wpaper:dte531