Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/296449 
Year of Publication: 
2023
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 18 [Issue:] 4 [Year:] 2023 [Pages:] 1623-1663
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
We study contracting when both principal and agent have to exert noncontractible effort for production to take place. An analyst is uncertain about what actions are available and evaluates a contract by the expected payoffs it guarantees to each party in spite of the surrounding uncertainty. Both parties are risk-neutral; there is no limited liability. Linear contracts, which leave the agent with a constant share of output in exchange for a fixed fee, are optimal. This result holds both in a preliminary version of the model, where the principal only chooses to supply or not supply an input, and in several variants of a more general version, where the principal may have multiple choices of input. The model thus generates nontrivial linear sharing rules without relying on either limited liability or risk aversion.
Subjects: 
asymmetric information
double-sided moral hazard
linear contracts
principal-agent model
robustness
Uncertainty
JEL: 
D81
D82
D86
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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