The Time Horizon Problem

I have a lot of research ideas and such that I need to catch up on posting, but I wanted to jot down this one quote/thought while it is just fresh. I just read a paragraph of an agency theory paper that made me think of the environmental problem:

"The Shorter time horizon for the agent and the superior information of the agent set up the classic tradeoff in accounting: we would like accounting reports to reflect information that is forward looking, but forward-looking information is less reliable and more manipulable. In particular, the short time horizon for the agent makes it more important that the principal have a forward-looking performance measure in order to motivate the agent to be 'long term' in his thinking. However, the short time horizon for the agent also means he has greater opportunities to avoid having to settle up if he misleads the principal about future prospects." (Lambert, JAE 2001)

This is a big part of what leads to environmental and social externalities. There is no way to tie management compensation to long-term thinking. Therefore, CEOs are essentially getting paid to maximize the short term at the expense of the long-term. Externalizing short-term costs to long-term resources like the environment is the rational decision for the agent because his performance is evaluated using short-term measures. This is probably not the optimal solution for the agent in the presence of a long-term performance measure that is not manipulable, but in current models, long-term performance measures are too easily manipulated to allow for optimal contracts based on long-term measures.

I don't know how to solve this problem, but, i do know that it is related to other problems that I am thinking about. I want to keep that in mind.