The optimal structure of incentives in the principal–agent problem under the smooth ambiguity model
Dalkıran, Nuh Aygün
Please cite this item using this persistent URLhttp://hdl.handle.net/11693/47703
We study a principal-agent problem where we model the uncertainty regarding the relationship between the level of effort and the monetary outcome using the smooth ambiguity model (Klibanoff et al., 2005). We provide comparative statics on the optimal wage scheme when the agent has constant absolute ambiguity aversion (CAAA) preferences. Our main result implies that whether the optimal wage scheme should be higher-powered or lower-powered depends on an intuitive measure of ambiguity.