Contracting with discretionary bonuses
Fuente:
arXiv
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| Autori principali: | , , |
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| Natura: | Preprint |
| Pubblicazione: |
2025
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| _version_ | 1866917112439635968 |
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| author | Alvarez, Guillermo Alonso Ekren, Ibrahim Huang, Liwei |
| author_facet | Alvarez, Guillermo Alonso Ekren, Ibrahim Huang, Liwei |
| contents | We study a continuous time contracting model in which a principal hires a risk averse agent to manage a project over a finite horizon and provides sequential payments whose timing is endogenously determined. The resulting nonzero-sum interaction between the principal and the agent is reformulated as a mixed control and stopping problem. Using numerical simulations, we investigate how factors such as the relative impatience of the parties and the number of bonus payments influence the principal's value and the structure of the optimal bonus payment scheme. A notable finding is that, in some contractual environments, the principal optimally offers a sign-on bonus to front-load incentives. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2511_23424 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Contracting with discretionary bonuses Alvarez, Guillermo Alonso Ekren, Ibrahim Huang, Liwei Theoretical Economics Optimization and Control We study a continuous time contracting model in which a principal hires a risk averse agent to manage a project over a finite horizon and provides sequential payments whose timing is endogenously determined. The resulting nonzero-sum interaction between the principal and the agent is reformulated as a mixed control and stopping problem. Using numerical simulations, we investigate how factors such as the relative impatience of the parties and the number of bonus payments influence the principal's value and the structure of the optimal bonus payment scheme. A notable finding is that, in some contractual environments, the principal optimally offers a sign-on bonus to front-load incentives. |
| title | Contracting with discretionary bonuses |
| topic | Theoretical Economics Optimization and Control |
| url | https://arxiv.org/abs/2511.23424 |