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Incentive Contracting under Limited Liability

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  • Park, Eun-Soo

Abstract

We examine the nature of incentive schemes between the principal and the risk-neutral agent in the presence of the agent's limited liability and ex ante action choice. We consider alternative schemes when a simple rental contract is infeasible due to the limited liability of the agent and study the effectiveness of a performance bonus scheme in achieving the first-best outcome. We also discuss some implications of such schemes in real practices. Copyright 1995 by MIT Press.

Suggested Citation

  • Park, Eun-Soo, 1995. "Incentive Contracting under Limited Liability," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 477-490, Fall.
    • Handle: RePEc:bla:jemstr:v:4:y:1995:i:3:p:477-90
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