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"Yes men", integrity, and the optimal design of incentive contracts

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  • Ewerhart, Christian
  • Schmitz, Patrick W.

Abstract

In a pioneering approach towards the explanation of the phenomenon of "yes man" behavior in organizations, Prendergast (1993) argued that incentive contracts in employment relationships generally make a worker distort his privately acquired information. This would imply that there is a trade-off between inducing a worker to exert costly effort and inducing him to tell the truth. In contrast, we show that with optimally designed contracts, which we term integrity contracts, the worker will both exert effort and report his information truthfully, and that hence the first best can be achieved.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 43 (2000)
Issue (Month): 1 (September)
Pages: 115-125

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Handle: RePEc:eee:jeborg:v:43:y:2000:i:1:p:115-125

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Cited by:
  1. Kräkel, Matthias, 2006. "Firm Size, Economic Situation and Influence Activities," IZA Discussion Papers 2391, Institute for the Study of Labor (IZA).
  2. Christian Laux, 2001. "Delegated Information Acquisition and Capital Budgeting: On the Separation of Project Evaluation and Project Management," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(4), pages 591-, December.
  3. Schmitz, Patrick W., 2001. "The Hold-Up Problem and Incomplete Contracts: A Survey of Recent Topics in Contract Theory," MPRA Paper 12562, University Library of Munich, Germany.
  4. Marco Ottaviani & Peter Sorensen, 1999. "Professional Advice," Game Theory and Information 9906003, EconWPA.
  5. Marco Ottaviani & Peter Norman Sorensen, 2002. "Professional Advice: The Theory of Reputational Cheap Talk," Discussion Papers 02-05, University of Copenhagen. Department of Economics.
  6. Wolfgang R. Köhler, 2004. "Optimal Incentive Contracts for Experts," Bonn Econ Discussion Papers bgse6_2004, University of Bonn, Germany.

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