New study reveals hidden costs in incentive contracts, impacting rent extraction.
Relational incentive contracts can have issues when the principal and agent have different patience levels. A new problem arises when they can't commit to long-term contracts and the agent is more patient. There's a balance between getting the most profit and motivating the agent. The best contract might change over time, even without secrets or limits. The researchers figured out when this balance matters and when changing contracts is best.