Formal and Relational Incentives in a Multitask Model

Download or read book Formal and Relational Incentives in a Multitask Model written by Kohei Daido and published by . This book was released on 2008 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the optimal contracts in a multitask model when a principal-agent relationship is long-term. If some outcomes are unverifiable, then the contracts have to satisfy the self-enforcing condition. I characterize the optimal contract in terms of the discount rate, the cost substitutes, and the weight of the unverifiable outcomes relative to the principal's payoff. Then, as the discount rate increases, the incentive to verifiable outcome (formal incentive) changes discontinuously and non-monotonically while the incentive to the unverifiable outcome (relational incentive) changes discontinuously but monotonically.