signalrelatedto
itsrealoutcomeprocessbysettingupanappropriatemathematicalmodel,andanalysestheimpactmechanismof
thisoverconfidencebiasonprincipal-agentrelationship.Theresultshowsthatthefirst?best
compensationcontract
consistsofthefollowingtwoparts:theagent’sreservationleveloffinalwealthandhereffortcostof
exertingcontin—uouslytheconstantfirst—besteffortlevel,andthesecond-bestcompensationcontractconsistsofthefollowingfourparts:theagent’sreservationleveloffinalwealth.hereffortcostofexertingcontinuouslytheeonslanlsecond—best
effortlevel,her
compensationriskpremiumandtheunexpectedoutcomeattheendofperiodTheoverconfidencebiasoftheprincipalandagentonthewouldfirm’scommonsignalqualityotincreaseagencyeoslandworsenthe
moralhazardproblem.Hence,alleffectivewayof
improvingtheprincipal—agentrelationshipisthattheprincipal
himselfmustkeeprationalityonthefirm’scommonsignal’8qualityatfirst.andthenhiretherationalagenton
this
aspect.thusensurearationalassessmentofthefirmcommoninformationasunbiasedas
possible.
Keywords:overconfidence;continuous—timeprincipal—agentmodel;agencycost;compensationcontract

