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Title: Payoff Implications of Incentive Contracting

Author(s): Daniel F Garrett

Publication Date: May 2020

Keyword(s): mechanism design, Procurement and robustness

Programme Area(s): Industrial Organization

Abstract: In the context of a canonical agency model, we study the payoff implications of introducing optimally structured incentives. We do so from the perspective of an analyst who does not know the agent's preferences for responding to incentives, but does know that the principal knows them. We provide, in particular, tight bounds on the principal's expected benefit from optimal incentive contracting across feasible values of the agent's expected rents. We thus show how economically relevant predictions can be made robustly given ignorance of a key primitive.

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Bibliographic Reference

Garrett, D. 2020. 'Payoff Implications of Incentive Contracting'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14725