Optimal Principal Agent Contracts for a Class of Incentive Schemes: A Characterization and the Rate of Approach to Efficiency

In this paper, we study a repeated moral hazard problem in which an agent is paid constant wage every period and retained on the job provided his past performance has met the following standard: he has maintained a specified rate of profits (or output) during his tenure or he has not done so, the cumulative losses, net of this rate, are no larger than an acceptable maximum.