Continuous-time incentives in hierarchies

Understand

This paper studies continuous-time optimal contracting in a hierarchy problem which generalises the model of Sung (2015).

• The hierarchy is modeled by a series of interlinked principal-agent problems, leading to a sequence of Stackelberg equilibria.
• More precisely, the principal can contract with the managers to incentivise them to act in her best interest, despite only observing the net benefits of the total hierarchy.
• Managers in turn subcontract with the agents below them.