Moral Hazard with Limited Liability: Incentive Contracting under Monotone Ratio Assumptions

摘要: This paper studies the moral hazard problem between a risk-neutral principal and agent with limited liability. We contribute to contract theory by introducing monotone ratio assumptions that are satisfied many standard effort-dependent distributions. They allow us characterize optimal without using first order approach, dominant solution method for problems. The demonstrates robustness of fixed-bonus as second-best design provides new insights about choice terms. illustrate greater effort may be induced from reducing performance threshold bonus. Motivated their popularity in practice, we also investigate linear contracts under one relaxed assumption. show widely used debt loses its optimality higher output variability, contingent revenue sharing should adopted instead.