IFin Seminar, Stéphane Villeneuve - Toulouse School of Economics "Shifting Demand, Hedging and Incentive Pay"
Institute of Finance
Speaker Stéphane Villeneuve - Toulouse School of Economics
Title "Shifting Demand, Hedging and Incentive Pay"
Date May 6, 2021
We investigate analytically how demand uncertainty and futures markets affect compen- sation in a principal-agent relationship. We consider the contracting problem of a firm that hires an agent to increase production of some good by exerting effort. It is assumed that the firm sells all its production at a pre-specified date. The firm maximizes its revenues by offering a contract and hedging on a futures markets. We characterize explicitly the optimal contract and comment on the effects of elastic demand on incentive costs.