Essays on dynamic contracts

This dissertation consists of three essays on dynamic contracts. Chapter One studies a dynamic principal-agent model in which the agent continuously works on a project which may yield a success. The principal cannot observe the success, but she observes imperfect signals over time after the agent stops working. The principal is more patient than the agent and both are risk neutral. In the optimal contract where the agent observes the success, the agent is induced to exert full effort until success and report it truthfully. The optimal payment scheme features a combination of wage and deferred bonus. When the agent does not observe the success, the optimal contract features a stochastic deadline and a deferred bonus payment. Chapter Two studies a discrete time principal-agent model where the agent's effort and ability are both private information. The wage is exogenously fixed and the principal designs a firing policy to incentivize the agent to work. In each period, the agent works on a project with binary outcomes. The high type has a higher probability of getting a good outcome than the low type conditional on high effort. The outcome in each period is publicly observed. In the optimal contract, the principal hires the high type for sure and hires the low type with some probability. Conditional on being hired, the high type faces a higher standard of performance. Chapter Three studies a dynamic model of delegated decision making with adverse selection and imperfect monitoring. In each period, a principal may delegate to a biased agent who has better information. The quality of the agent's information depends on his ability. In the optimal mechanism where the agent's ability is publicly observable, the principal delegates to the agent at the beginning of their relationship and the agent behaves in the principal's interest. Depending on the history, the principal either commits to delegating forever or stops delegating eventually. When the agent's ability is private information, the optimal mechanism features pooling at the top. The principal offers the same mechanism to the agent if his ability is known to be above a cutoff.

Author dc:creator

• Zhao, Nan

Advisor dc:contributor.advisor

• Lipman, Barton

• Economic theory
• Adverse selection
• Dynamic contracts
• Mechanism design
• Moral hazard

Language dc:language.iso

en_US

Handle dc:identifier.uri

https://hdl.handle.net/2144/43990

OAI identifier oai:identifier

oai:open.bu.edu:2144/43990