Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/94114
Authors: 
Budde, Jörg
Hofmann, Christian
Year of Publication: 
2011
Series/Report no.: 
SFB/TR 15 Discussion Paper 443
Abstract: 
We analyze a two-period agency problem with limited liability and nonverifiable information. The principal commits to a dynamic bonus pool comprising a fixed total payment that may be distributed over time to the agent and a third party. We find that the optimal two-period contract features memory. If the agent succeeds in the first-period, second-period incentives are weakened whereas higher-powered incentives are provided if he fails. The two-period bonus pool offers a complementary reason for why third-party payments are not commonly observed in practice.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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