Dynamic incentive contracts with controllable risk
研究委托人雇佣代理人管理项目时，双方均可动态控制项目风险的激励合同模型，发现委托人控制风险时合同效率更高，且代理人承诺价值越高优势越明显。
We address a dynamic contracting model in which a principal hires an agent to manage a project. The key new ingredient is that either the principal or the agent can dynamically control the project risk. Increasing the risk has three effects: (i) a positive drift effect due to the risk premium, (ii) a negative drift effect that captures inefficiencies arising from risk-shifting, and (iii) a mechanical mean-preserving spread effect. We show that if the principal instead of agent controls the risk, we get a higher contract efficiency. The higher the agent's promised value, the more pronounced the advantage. The non-contractibility of risk induces the agent's risk-taking behavior. The contract efficiency in the exogenous no-savings environment is higher than that in the endogenous one due to additional costs of no-savings incentives. These findings contribute to the allocation of control rights, bringing forth a corporate governance perspective.