Dynamic contracts and learning by doing

Julien Prat

doi:10.1007/s11579-014-0120-6

Dynamic contracts and learning by doing

Julien Prat

ENSAE
BGSE

Research output: Contribution to journal › Article › peer-review

Abstract

This paper studies the design of optimal contracts in dynamic environments where agents learn by doing. We derive a condition under which contracts are fully incentive compatible. A closed-form solution is obtained when agents have CARA utility. It shows that human capital accumulation strengthens the power of incentives and allows the principal to provide the agent with better insurance against transitory risks.

Original language	English
Pages (from-to)	169-193
Number of pages	25
Journal	Mathematics and Financial Economics
Volume	9
Issue number	3
DOIs	https://doi.org/10.1007/s11579-014-0120-6
Publication status	Published - 1 Jun 2015
Externally published	Yes

Keywords

Dynamic incentives
Human capital
Moral hazard
Principal agent model

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10.1007/s11579-014-0120-6

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title = "Dynamic contracts and learning by doing",

abstract = "This paper studies the design of optimal contracts in dynamic environments where agents learn by doing. We derive a condition under which contracts are fully incentive compatible. A closed-form solution is obtained when agents have CARA utility. It shows that human capital accumulation strengthens the power of incentives and allows the principal to provide the agent with better insurance against transitory risks.",

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AB - This paper studies the design of optimal contracts in dynamic environments where agents learn by doing. We derive a condition under which contracts are fully incentive compatible. A closed-form solution is obtained when agents have CARA utility. It shows that human capital accumulation strengthens the power of incentives and allows the principal to provide the agent with better insurance against transitory risks.

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KW - Moral hazard

KW - Principal agent model

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Dynamic contracts and learning by doing

Abstract

Keywords

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