Incentives, project choice, and dynamic multitasking

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

I study the optimal choice of projects in a continuous-time moral hazard model with multitasking. I characterize the distortions caused by moral hazard and the dynamics of the firm's project choice. Both overinvestment and underinvestment relative to a net present value (NPV) criterion can occur on the path of the contract. As past performance increases, the firm chooses projects that require higher pay–performance sensitivity. When the continuation value is large, investment projects are chosen more efficiently, and project choice depends more on the NPV and less on the incentive costs. I implement the optimal contract with an equity stake, bonus payments, and a personal account.

Original languageEnglish (US)
Pages (from-to)813-847
Number of pages35
JournalTheoretical Economics
Volume14
Issue number3
DOIs
StatePublished - 2019
Externally publishedYes

Bibliographical note

Publisher Copyright:
Copyright © 2019 The Author.

Keywords

  • Continuous-time contracting
  • bonus payments
  • multitasking
  • project choice

Fingerprint

Dive into the research topics of 'Incentives, project choice, and dynamic multitasking'. Together they form a unique fingerprint.

Cite this