Option-like Contracts For Innovation and Production

摘要: We model how firms motivate their risk-averse managers to evaluate new investment projects as well manage assets-in-place. first consider a two-agent model: an Innovator in charge of project adoption and Producer production. The Innovator's effort produces better information on risky projects, but he may reject good order avoid risk. Producer's increases the mean firm value faces uncertainty his productivity, due externality created by project. examine two agents' roles separately also combine them Nash game. derive optimal contracts for show that under mild conditions they exhibit convexity. next demonstrate when single agent is assigned both tasks, contract general convex, with degree convexity increasing agent's importance managing interpret "option-like" compensation.