Endogenous agency problems and the dynamics of rents

No 13-423, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: While potentially more productive, more complex tasks request more e¤ort, generating larger agency rents. Agents therefore prefer to acquire complex skills, to earn large rents. In our overlapping generations model, their ability to do so is kept in check by competition with predecessors. Old agents, however, are imperfect substitutes for young ones, because the latter are easier to incentivize, thanks to longer horizons. This reduces competition between generations, enabling young managers to go for larger complexity than their predecessors. Consequently, equilibrium complexity and rents gradually increase, especially when agents are patient and turnover limited, so that compensation deferral is very useful to mitigate moral hazard.

Keywords: Agency rents; moral hazard; dynamic contracts; complexity (search for similar items in EconPapers)
JEL-codes: D3 D8 G2 (search for similar items in EconPapers)
Date: 2013-05, Revised 2018-07
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Related works:
Journal Article: Endogenous Agency Problems and the Dynamics of Rents (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:27435

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