TY - JOUR
T1 - Comparative statics of the optimal dynamic incentive contract
AU - Laffont, Jean Jacques
AU - Tirole, Jean
N1 - Funding Information:
*This research was supported by the Commissariat du Plan and the National Foundation. We are grateful to the referees for helpful comments. ‘See Laffont-Tirole (1985) for references to the literature on incentives in dynamic models.
PY - 1987/6
Y1 - 1987/6
N2 - Each period a firm must carry out an indivisible project, the cost of which depends on the firm's constant efficiency and its (variable) level of 'effort'. Only the cost is observed by the regulator who has to choose the incentive scheme. The optimal dynamic mechanism is derived under possible commitment of the regulator over time. Then, under non-commitment, it is shown that there are four types of continuation equilibria. Also the profile of effort levels is compared to the commitment case. Finally, some numerical comparative statics is performed and it is shown that all types of equilibria can be optimal.
AB - Each period a firm must carry out an indivisible project, the cost of which depends on the firm's constant efficiency and its (variable) level of 'effort'. Only the cost is observed by the regulator who has to choose the incentive scheme. The optimal dynamic mechanism is derived under possible commitment of the regulator over time. Then, under non-commitment, it is shown that there are four types of continuation equilibria. Also the profile of effort levels is compared to the commitment case. Finally, some numerical comparative statics is performed and it is shown that all types of equilibria can be optimal.
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U2 - 10.1016/0014-2921(87)90006-7
DO - 10.1016/0014-2921(87)90006-7
M3 - Article
AN - SCOPUS:38249033262
SN - 0014-2921
VL - 31
SP - 901
EP - 926
JO - European Economic Review
JF - European Economic Review
IS - 4
ER -