Answers are grounded in this paper and cite their sources.
We examine the ability of linear contracts to replicate the performance of optimal unrestricted contracts in the canonical moral hazard setting with a wealth constrained, risk averse agent. We find that in a broad class of environments, the principal can always secure with a linear contract at least 95% of the profit that she secures with an optimal unrestricted contract, provided the productivity of the agent's effort is not too meager.
No takes yet. Share an insight, caveat, or question.
Bose et al. (2011) studied this question.
Synapse has enriched 5 closely related papers on similar clinical questions. Consider them for comparative context: