?url_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Adc&rft.relation=http%3A%2F%2Fmiis.maths.ox.ac.uk%2Fmiis%2F164%2F&rft.title=Designing+Incentive-Alignment+Contracts+in+a+Principal-Agent+Setting+in+the+Presence+of+Real+Options&rft.creator=Cottrell%2C+Tom&rft.creator=Calistrate%2C+Dan&rft.subject=Finance&rft.description=We+develop+a+model+of+incentive+compensation+for+optimal+upgrades+supplied+by+an+outsourced+Information+Technology+department.+We+first+consider+the+problem+when+the+rate+of+technological+development+is+certain+and+there+are+no+information+asymmetries+between+the+parties.+We+extend+this+to+allow+private+information+between+the+principal+and+an+agent+acting+as+an+external+supplier+of+information+technology+upgrades.+Based+on+the+model+in+these+simple+circumstances%2C+we+then+model+uncertain+technological+improvements%2C+where+improvements+evolve+as+Geometric+Brownian+motion%2C+and+there+is+benefit+to+flexibility+in+the+timing+of+the+upgrade.++We+are+aware+of+contracts%2C+known+as+%22evergreen+upgrades%22%2C+where+a+principal+pays+for+upgrades+at+specified+intervals.+We+find+little+support+for+such+a+contract+in+our+model%2C+and+the+loss+of+flexibility+in+the+timing+of+upgrades+is+puzzling.+The+Stern-Stewart+problem+encourages+us+to+consider+just+such+instances%2C+where+contracts+limit+flexibility+that+it+may+in+the+interest+of+both+parties+to+retain.&rft.date=2000&rft.type=Study+Group+Report&rft.type=NonPeerReviewed&rft.format=application%2Fpdf&rft.language=en&rft.identifier=http%3A%2F%2Fmiis.maths.ox.ac.uk%2Fmiis%2F164%2F1%2Fincentive_compensation.pdf&rft.identifier=++Cottrell%2C+Tom+and+Calistrate%2C+Dan++(2000)+Designing+Incentive-Alignment+Contracts+in+a+Principal-Agent+Setting+in+the+Presence+of+Real+Options.++%5BStudy+Group+Report%5D+++++