Unlocking the power of option contracts in agency problems
This article talks about how an agent and a boss can work together better when the agent invests in something that's more valuable to the boss. If they can change their contract later, the boss might try to take advantage of the agent. But if the agent's investment makes him more valuable, he can negotiate better. The researchers found that using option contracts can help them reach the best outcome when the agent's value goes up more than the boss's power to take advantage. Otherwise, it's hard to get the best result.