The optimal structure of incentives in the principal–agent problem under the smooth ambiguity model
Author
Öztürk, Fatih
Advisor
Dalkıran, Nuh Aygün
Date
2018-07Publisher
Bilkent University
Language
English
Type
ThesisItem Usage Stats
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Abstract
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.