Skip to Main content Skip to Navigation
Journal articles

Contracting Under Unverifiable Monetary Costs

Abstract : We consider a contracting relationship where the agent's effort induces monetary costs, and limits on the agent's resource restrict his capability to exert effort. We show that, the principal finds it best to offer a sharing contract while providing the agent with an up-front financial transfer only when the monetary cost is neither too low nor too high. Thus, unlike in the limited liability literature, the principal might find it optimal to fund the agent. Moreover, both incentives and the amount of funding are non-monotonic functions of the monetary cost. These results suggest that an increase in the interest rate may affect the form of contracts differently , depending on the initial level of the former. Using the analysis, we provide and discuss several predictions and policy implications.
Document type :
Journal articles
Complete list of metadata

Cited literature [32 references]  Display  Hide  Download

https://hal.inrae.fr/hal-02866383
Contributor : Raphael Soubeyran Connect in order to contact the contributor
Submitted on : Friday, June 12, 2020 - 2:03:51 PM
Last modification on : Wednesday, November 3, 2021 - 8:01:00 AM

File

motivating_funding_R2_REV.pdf
Files produced by the author(s)

Licence


Distributed under a Creative Commons Attribution - NonCommercial - NoDerivatives 4.0 International License

Identifiers

Citation

Nicolas Quérou, Antoine Soubeyran, Raphael Soubeyran. Contracting Under Unverifiable Monetary Costs. Journal of Economics and Management Strategy, Wiley, 2020, 29 (4), pp.892-909. ⟨10.1111/jems.12389⟩. ⟨hal-02866383⟩

Share

Metrics

Record views

172

Files downloads

77