Linearity with Project Selection and Controllable Diffusion Rate in Continuous-Time Principal-Agent Problems
扩展了Holmstrom和Milgrom的模型，允许代理人私下或公开控制扩散率过程，并证明最优合同仍是线性的。讨论了扩散率选择冲突的条件，并应用于企业项目选择问题，分析经理与投资者之间的利益冲突。
I extend Holmstrom and Milgrom's model by allowing the agent to control privately or publicly the diffusion-rate process, and show that the optimal contract is still linear. I discuss the conditions under which conflicts over the choice of diffusion rate do and do not arise. As an application, I examine project- selection problems of a firm. Conflicts between the manager and investors arise because giving the manager too much incentive to work to increase the profit from ongoing operations can induce him to be too conservative in project selection, possibly resulting in optimal contracts with low sensitivities.