TY - JOUR
T1 - Fixed wages and bonuses in agency contracts
T2 - The case of a continuous state space
AU - Racionero, Maria
AU - Quiggin, John
PY - 2006
Y1 - 2006
N2 - In this paper, we extend the state-contingent production approach to principal-agent problems to the case where the state space is an atomless continuum. The approach is modelled on the treatment of optimal tax problems. The central observation is that, under reasonable conditions, the optimal contract may involve a fixed wage with a bonus for abovenormal performance. This is analogous to the phenomenon of "bunching" at the bottom in the optimal tax literature.
AB - In this paper, we extend the state-contingent production approach to principal-agent problems to the case where the state space is an atomless continuum. The approach is modelled on the treatment of optimal tax problems. The central observation is that, under reasonable conditions, the optimal contract may involve a fixed wage with a bonus for abovenormal performance. This is analogous to the phenomenon of "bunching" at the bottom in the optimal tax literature.
UR - http://www.scopus.com/inward/record.url?scp=33745579792&partnerID=8YFLogxK
U2 - 10.1111/j.1467-9779.2006.00287.x
DO - 10.1111/j.1467-9779.2006.00287.x
M3 - Article
SN - 1467-9779
VL - 8
SP - 761
EP - 777
JO - Journal of Public Economic Theory
JF - Journal of Public Economic Theory
IS - 5
ER -