During the last three decades, moral hazard problems and their implications for optimal risk-sharing within organizations was a major field of research in organization theory. The standard approach in which a risk neutral principal designs an incentive scheme for a risk averse agent goes back to Holmström (1979). It leads to the well-known trade-off between the efficient allocation of risk and the optimal provision of incentives. However, the empirical relevance of this approach has been questioned during the last years, especially in the area of manager compensation.
The purpose of this project is to extend the standard approach in three directions. First, it will be taken into account that agents usually perform several tasks (multi-tasking). In this context, a data set about management incentive contracts will be collected and used for the inspection of a multi-tasking model. Second, the principal-agent relationship will be embedded in a multi-period setting applying the concept of reputational equilibria. Reputational equilibria allow the implementation of contract clauses which are non-verifiable and, therefore, cannot be enforced by a third party, e.g. a court. The importance of reputational equilibria for manager compensation is particularly obvious in the case of stock options. Stock options are frequently renegotiated if there are unforeseen events like a slump of stock prices. Finally, it will be investigated how different principal-agent relationships within an organization are linked with each other, especially in the case of inequity averse preferences. Overall, the central question of this project is how these extensions and their implications affect optimal risk sharing in organizations.