Contracting Under Unverifiable Monetary Costs
Antoine Soubeyran and
Raphael Soubeyran ()
Additional contact information
Antoine Soubeyran: AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique
Post-Print from HAL
We consider a contracting relationship where the agent's effort induces monetary costs, and limits on the agent's resource restrict his capability to exert effort. We show that, the principal finds it best to offer a sharing contract while providing the agent with an up-front financial transfer only when the monetary cost is neither too low nor too high. Thus, unlike in the limited liability literature, the principal might find it optimal to fund the agent. Moreover, both incentives and the amount of funding are non-monotonic functions of the monetary cost. These results suggest that an increase in the interest rate may affect the form of contracts differently , depending on the initial level of the former. Using the analysis, we provide and discuss several predictions and policy implications.
Keywords: contract theory; wealth constraint; funding; moral hazard (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hrm and nep-mic
Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-02866383
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Published in Journal of Economics and Management Strategy, Wiley, 2020, 29 (4), pp.892-909. ⟨10.1111/jems.12389⟩
Downloads: (external link)
Journal Article: Contracting under unverifiable monetary costs (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02866383
Access Statistics for this paper
More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().