Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/67769
Authors: 
Vierø, Marie-Louise
Year of Publication: 
2009
Series/Report no.: 
Queen's Economics Department Working Paper 1212
Abstract: 
The granting of stock options to employees who have negligible impact on company performance intuitively violates Holmstrom's (1979) sufficient statistic result. This paper revisits the sufficient statistic question of when to condition a contract on an outside signal in a principal-agent model in which I introduce imprecise (or vague) information. The paper applies a choice theoretic framework introduced in Olszewski (2007) and Ahn (2008) and extended by Viero (2009a), who denoted it vague environments. I show that if the signal is vague, Holmstrom's result can be overturned.
Subjects: 
contracts
vagueness
optimism
incentives
signals
stock options
JEL: 
D20
D80
D82
D86
Document Type: 
Working Paper

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