Zhu, John Y. Myopic agency. (English) Zbl 1405.91341 Rev. Econ. Stud. 85, No. 2, 1352-1388 (2018). Summary: I consider a dynamic principal-agent setting in which the agent repeatedly chooses between hidden long-term and short-term actions. Relative to the long-term action, the short-term action boosts output today but hurts output tomorrow. I explicitly characterize the optimal contract that always induces the long-term action. It features a cliff-like arrangement that rewards high output today based on the streak of consecutive high outputs the agent has generated leading up to today: The longer the streak, the larger the reward. The optimal contract can be implemented as a bonus bank. Bonus banks feature prominently in the recent debate on bonus reform. I shed light on the opposing arguments driving this debate by formally comparing the myopic agency optimal contract and optimal contracts that arise from traditional effort-shirking agency models. MSC: 91B40 Labor market, contracts (MSC2010) Keywords:principal-agent; dynamic contract; myopia; robust contract; investment; bonus deferral; bonus bank; long-term; short-term; persistent moral hazard PDFBibTeX XMLCite \textit{J. Y. Zhu}, Rev. Econ. Stud. 85, No. 2, 1352--1388 (2018; Zbl 1405.91341) Full Text: DOI