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Dynamic Principal-Multiple Agent Contracts

 
Paper:ewp-comp/9807001
From:    
Date: Sat, 18 Jul 1998 15:23:45 -0500

Abstract:
I explore the nature of optimal static and dynamic contracts in an environment with moral hazard, where individuals contracting with the same principal receive correlated productivity shocks. The environment resembles the one considered in relative compensation theory ( i.e tournament theory), but extends this theory by solving for the optimal static and dynamic contracts in this setting. I compute and analyze \emph{independent} (each worker's compensation depends only on her output) and relative contracts (each worker's compensation depends on the xoutputs of all workers contracting with the same principal). Results imply that the optimal static relative contract is not substantially different from the optimal static independent contracts. However, the dynamic relative contract displays a strong a tournament feature; the contract gives the highest compensation to the worker who produces more than her counterparts and the lowest compensation to the least productive worker. I also characterize the stochastic processes for consumption and effort implied by dynamic contracts, and study the age-earnings profiles of the workers.

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EconWPA began as a conversation between Bob Parks and Larry Blume on January 28, 1993. I located Paul Ginsparg's archive (then xxx.lanl.gov) and he graciously installed his software on a Sun Sparc system which was supporting the department of economics email and computation. EconWPA began accepting papers July 1, 1993 and had ftp, email, gopher and web interfaces. The web interface for submissions was engineered into existence in July 1995. A complete and catastrophic machine failure in 1999 caused the loss of EconWPA's email new paper announcment service at which time there were over 15,000 subscriptions with over 8,000 unique email addresses.

In 2005, Arts and Sciences commandeered the computing services that I had provided to the Department of Economics since 1987. Some might say that the department was sold out, others would (erroneously) claim that centralization is efficient, and still others would claim that I have few marketing skills.

I was told that I could keep operating EconWPA (as well as many other services including rfe.wustl.edu, barnett.wustl.edu, and three RePEc servers) but I would receive no support (hardware, software, or anthing else) and (as had been the case) no compensation. At that point, given the apparent low valuation of my activities by the department, and university, it made no sense for me to continue operating EconWPA or other services.

Thanks to all who have supported EconWPA in the past.

A Chinese curse states May you live in intersting times. I have. Bob Parks - Jan 2006