52ca6dc1___Carlson_School_of_Management__Presentation
[Date] 11/14/2014 [Presentation] 
Barney Hartman-Glaser, University of California, Los Angeles " Dynamic Agency and Real Options Dynamic Agency and Real Options (437.06 KB) " We analyze how dynamic moral hazard affects corporate investment. In our model, the owners of a firm hold a real option to increase capital. They also employ a manager who controls the firm's productivity, but is subject to moral hazard. Although this conflict reduces capital productivity, both over- and under-investment can occur. When moral hazard is severe, the firm invests at a lower threshold in productivity than in the first-best because investment is a substitute for effort. When the growth option is large, the investment threshold is higher than in the first-best. We also discuss how investment affects pay-performance sensitivity.
Finance Department Guest Seminar Archives 2010-Present | Carlson School of Management
Presentation