Abstract
A decision maker repeatedly exerts efforts to produce new outputs, while being compensated based on his past and current production levels. We show that the decision maker’s optimal strategy dictates a cyclic oscillatory performance whenever the compensation depends on recent past performance. We apply our model to various economic settings such as the delegated portfolio-managers problem, an R &D investment problem, and a dynamic advertising problem.
Original language | English |
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Pages (from-to) | 999-1024 |
Number of pages | 26 |
Journal | Economic Theory |
Volume | 77 |
Issue number | 4 |
DOIs | |
State | Published - 1 Jun 2024 |
Keywords
- C61
- C62
- C79
- Dynamic optimization
- Performance cycles
- Performance persistence
ASJC Scopus subject areas
- Economics and Econometrics