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Relative performance or team evaluation? Optimal contracts for other-regarding agents

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  • Bartling, Björn

Abstract

This paper derives optimal incentive contracts for agents with other-regarding preferences. It offers a behavioral explanation for the empirically observed lack of relative performance evaluation. We analyze a principal-multi agent model and assume that agents are inequity averse or status seeking. We show that team contracts can be optimal even if the agents' performance measures are positively correlated such that relative performance evaluation would be optimal with purely self-interested agents and even though relative performance evaluation provides additional incentives to provide effort if agents have other-regarding preferences. Furthermore, optimal incentive contracts for other-regarding agents can be low-powered as compared to contracts for purely self-interested agents.

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Bibliographic Info

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

Volume (Year): 79 (2011)
Issue (Month): 3 (August)
Pages: 183-193

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Handle: RePEc:eee:jeborg:v:79:y:2011:i:3:p:183-193

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Other-regarding preferences Inequity aversion Status seeking Relative performance evaluation Low-powered incentives;

References

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Citations

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Cited by:
  1. Gürtler, Marc & Gürtler, Oliver, 2011. "Inequality aversion and externalities," Working Papers IF36V1, Technische Universität Braunschweig, Institute of Finance.
  2. Pradeep Dubey & John Geanakoplos & Ori Haimanko, 2011. "Prizes versus Wages with Envy and Pride," Cowles Foundation Discussion Papers 1835, Cowles Foundation for Research in Economics, Yale University.
  3. Robert Dur & Jan Tichem, 2012. "Social Relations and Relational Incentives," Tinbergen Institute Discussion Papers 12-054/1, Tinbergen Institute.
  4. Kragl, Jenny & Gogova, Martina, 2013. "Wage Bargaining when Workers Have Fairness Concerns," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79790, Verein für Socialpolitik / German Economic Association.
  5. Felix Bierbrauer & Nick Netzer, 2012. "Mechanism Design and Intentions," Working Paper Series in Economics 53, University of Cologne, Department of Economics, revised 21 Aug 2012.
  6. Kirill Chernomaz, 2012. "Inequity aversion in a model with moral hazard," Economics Bulletin, AccessEcon, vol. 32(3), pages 2500-2510.
  7. David Gill & Rebecca Stone, 2011. "Desert and Inequity Aversion in Teams," Economics Series Working Papers 563, University of Oxford, Department of Economics.
  8. Delfgaauw, Josse & Dur, Robert & Non, Arjan & Verbeke, Willem, 2013. "Dynamic Incentive Effects of Relative Performance Pay: A Field Experiment," IZA Discussion Papers 7652, Institute for the Study of Labor (IZA).
  9. Golman, Russell & Bhatia, Sudeep, 2012. "Performance evaluation inflation and compression," Accounting, Organizations and Society, Elsevier, vol. 37(8), pages 534-543.
  10. Kohei Daido & Takeshi Murooka, 2011. "Team Incentives and Reference-Dependent Preferences," Discussion Paper Series 70, School of Economics, Kwansei Gakuin University, revised May 2011.
  11. Bartling, Björn, 2012. "Multi-tasking and inequity aversion in the linear–exponential–normal moral hazard model," Economics Letters, Elsevier, vol. 116(3), pages 523-525.
  12. Shingo Ishiguro, 2011. "Fair Contracts," Discussion Papers in Economics and Business 11-30, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  13. Robert Dur & Jan Tichem, 2012. "Social Relations and Relational Incentives," Tinbergen Institute Discussion Papers 12-054/1, Tinbergen Institute.
  14. Imhof, Lorens & Kräkel, Matthias, 2014. "Bonus pools and the informativeness principle," European Economic Review, Elsevier, vol. 66(C), pages 180-191.
  15. Pradeep K. Dubey & John Geanakoplos & Ori Haimanko, 2012. "Prizes Versus Wages with Envy and Pride," Levine's Working Paper Archive 786969000000000336, David K. Levine.

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