Venture Capital And State Executive Compensation

This paper mainly studies the design of incentive contracts between a risk-neutral investor and a risk-neutral agent under the constraint of limited liability. This paper studies two types of incentive contracts:one is financial contract and the other one is labor contract which are both based on the the principal-agent model. In the design of financial contract, the principal is the investors and the agent is the entrepreneurs. In the design of labor contract, the principal is the company and the agent is the enterprise managers or employees. The problem of incentive design is related to how reduce the agent’s moral hazard and the externalities of limited liability by the design of optimal incentive contract scheme.In this paper, though the principal-agent model, a debt contract is shown to be the efficient financial contractual form under the constraint of limited liability. However, a bonus contract is shown to be the efficient labor contractual form under the constraint of limited liability. Under the framework of limited liability, this paper explores a series of problems of financing and venture capital contract. And also explore the problem of labor contract. There are both differences and commons between the two types contacts by the comparative study of two kinds of contracts. Implications of these two types of contracts are also discussed.