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Holmstrom (1999) - Managerial Incentive Problems (view source)
Revision as of 19:14, 29 September 2020
, 19:14, 29 September 2020no edit summary
{{Article
|Has page=Holmstrom (1999) - Managerial Incentive Problems
|Has bibtex key=
|Has article title=Managerial Incentive Problems
|Has author=Holmstrom
|Has year=1999
|In journal=
|In volume=
|In number=
|Has pages=
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*This page is referenced in [[BPP Field Exam Papers]]
==Reference(s)==
Holmstrom B., (1999) "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, 66(1): 169-182 [http://www.edegan.com/pdfs/Holmstrom%20(1999)%20-%20Managerial%20Incentive%20Problems.pdf pdf]
So must conclude that the variance tends to a steady state and not to zero. This in turn leads to steady state effort, which we can solve for by equating the marginal benefit to the marginal cost of a change:
:<math>g^{\prime }(a^{*}) &=&\beta (1-\mu ^{*})+\beta ^{2}\mu ^{*}(1-\mu^{*})+\beta ^{3}(\mu ^{*})^{2}(1-\mu ^{*})+\cdot \cdot \cdot=\frac{\beta (1-\mu ^{*})}{1-\beta \mu ^{*}}\,</math>
Which in turn leads to Holmstrom's proposition 1 that the stationary effort is <math>a^{*}\leq a^{FB}\,</math> and only equal to first best if <math>\beta =1,\,\frac{1}{h_{\varepsilon }}>0\,</math>, and <math>$\frac{1}{h_{\delta }}>0\,</math>
