Capacity Constraints in Principal-Agent Problems

Aubrey Clark

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arXiv · 2412.01760

Capacity Constraints in Principal-Agent Problems

Aubrey Clark

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Abstract

Adding a capacity constraint to a hidden-action principal-agent problem results in the same set of Pareto optimal contracts as the unconstrained problem where output is scaled down by a constant factor. This scaling factor is increasing in the agent's capacity to exert effort.

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Aubrey Clark. 2024-12-02. Capacity Constraints in Principal-Agent Problems. https://arxiv.org/abs/2412.01760

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