Moral Hazard Class Problem

I plan to devote part of tomorrow’s class meeting for Finance 4335 to solving the “Moral Hazard Class Problem” linked below.

In a nutshell, this problem looks carefully at how to go about designing a so-called “incentive compatible contract” between a corporate owner (the principal) and manager (the agent). The trick involves making sure that both the principal and the agent have “skin in the game”; here, this pertains to offering the corporate manager an incentive compensation scheme involving a cut in salary that is supplemented by a bonus if certain profit targets are met.

See y’all tomorrow!

Moral Hazard Class Problem.pdf

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