Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/110266
Authors: 
Hoffmann, Florian
Inderst, Roman
Opp, Marcus
Year of Publication: 
2015
Series/Report no.: 
IMFS Working Paper Series 91
Abstract: 
Our paper evaluates recent regulatory proposals mandating the deferral of bonus payments and claw-back clauses in the financial sector. We study a broadly applicable principal agent setting, in which the agent exerts effort for an immediately observable task (acquisition) and a task for which information is only gradually available over time (diligence). Optimal compensation contracts trade off the cost and benefit of delay resulting from agent impatience and the informational gain. Mandatory deferral may increase or decrease equilibrium diligence depending on the importance of the acquisition task. We provide concrete conditions on economic primitives that make mandatory deferral socially (un)desirable.
Subjects: 
financial regulation
compensation design
principal-agent models
JEL: 
G28
G21
D86
Document Type: 
Working Paper

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