Advanced Search
MyIDEAS: Login to save this article or follow this journal

Relative performance evaluation, agent hold-up and firm organization

Contents:

Author Info

  • Kvaløy, Ola
  • Olsen, Trond E.

Abstract

We analyze a situation where common noise makes compensation based on relative performance evaluation (RPE) desirable, but where the agents' ability to hold-up values ex post obstruct the implementation of optimal RPE schemes. The principal can take actions to constrain the agents' hold-up power by limiting their outside options and by protecting property rights, but once these actions are costly, a trade-off between incentive provision and agent control appears. The model contributes to the theory of the firm. It indicates why firms, not agents, own assets, and why peer-dependent incentive systems are more common within than between firms. J. Japanese Int. Economies 22 (2) (2008) 229-241.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6WMC-4RKMJ0H-1/1/03e2f8450e5992a166397e5d517ce767
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 22 (2008)
Issue (Month): 2 (June)
Pages: 229-241

as in new window
Handle: RePEc:eee:jjieco:v:22:y:2008:i:2:p:229-241

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622903

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, American Economic Association, vol. 84(4), pages 972-91, September.
  2. Ola Kvaloy & Trond Olsen, 2007. "The Rise of Individual Performance Pay," CESifo Working Paper Series, CESifo Group Munich 2145, CESifo Group Munich.
  3. Macho-Stadler, Ines & Perez-Castrillo, J. David, 1993. "Moral hazard with several agents : The gains from cooperation," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 11(1), pages 73-100, March.
  4. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers, Rochester, Business - Managerial Economics Research Center 90-07, Rochester, Business - Managerial Economics Research Center.
  5. Harvey James, 2002. "The Trust Paradox: A Survey of Economic Inquiries Into the Nature of Trust and Trustworthiness," Microeconomics, EconWPA 0202001, EconWPA.
  6. Yeon-Koo Che & Seung-Weon Yoo, 2001. "Optimal Incentives for Teams," American Economic Review, American Economic Association, American Economic Association, vol. 91(3), pages 525-541, June.
  7. Itoh Hideshi, 1993. "Coalitions, Incentives, and Risk Sharing," Journal of Economic Theory, Elsevier, Elsevier, vol. 60(2), pages 410-427, August.
  8. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 841-64, October.
  9. James B. Rebitzer & Lowell J. Taylor, 2006. "When Knowledge is an Asset: Explaining the Organizational Structure of Large Law Firms," Economics Working Paper Archive, Levy Economics Institute wp_477, Levy Economics Institute.
  10. Green, Jerry & Stokey, Nancy, 1983. "A Comparison of Tournaments and Contracts," Scholarly Articles 3203644, Harvard University Department of Economics.
  11. Jonathan Levin, 2002. "Multilateral Contracting And The Employment Relationship," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(3), pages 1075-1103, August.
  12. Oyer, Paul, 2001. "Why Do Firms Use Incentives That Have No Incentive Effects?," Research Papers, Stanford University, Graduate School of Business 1686, Stanford University, Graduate School of Business.
  13. James Jr., Harvey S., 2002. "The trust paradox: a survey of economic inquiries into the nature of trust and trustworthiness," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 47(3), pages 291-307, March.
  14. Lorne Carmichael, 1981. "Firm-Specific Human Capital and Promotion Ladders," Working Papers, Queen's University, Department of Economics 452, Queen's University, Department of Economics.
  15. Jonathan Levin, 2000. "Relational Incentive Contracts," Working Papers, Stanford University, Department of Economics 01002, Stanford University, Department of Economics.
  16. Oliver Hart, 2001. "Norms and the Theory of the Firm," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1923, Harvard - Institute of Economic Research.
  17. Rajan, Raghuram G & Zingales, Luigi, 1998. "Power in a Theory of the Firm," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1777, C.E.P.R. Discussion Papers.
  18. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier.
  19. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  20. Rajesh Aggarwal & Andrew A. Samwick, 1998. "The Other Side of the Tradeoff: The Impact of Risk on Executive Compensation," NBER Working Papers 6634, National Bureau of Economic Research, Inc.
  21. Malcomson, James M, 1984. "Work Incentives, Hierarchy, and Internal Labor Markets," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(3), pages 486-507, June.
  22. Bull, Clive, 1987. "The Existence of Self-Enforcing Implicit Contracts," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 102(1), pages 147-59, February.
  23. Erling Barth & Bernt Bratsberg & Torbjørn Hægeland & Oddbjørn Raaum, 2008. "Who pays for performance?," International Journal of Manpower, Emerald Group Publishing, Emerald Group Publishing, vol. 29(1), pages 8-29, May.
  24. Jonathan Levin & Steven Tadelis, 2005. "Profit Sharing and the Role of Professional Partnerships," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 120(1), pages 131-171, January.
  25. Mookherjee, Dilip, 1984. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 51(3), pages 433-46, July.
  26. Kvaløy, Ola & Olsen, Trond E., 2005. "Team Incentives in Relational Employment Contracts," Discussion Papers, Department of Business and Management Science, Norwegian School of Economics 2005/7, Department of Business and Management Science, Norwegian School of Economics.
  27. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(481), pages 539-558, July.
  28. Maija Halonen, 2002. "Organizational Design, Technology and the Boundaries of the Firm," Bristol Economics Discussion Papers 02/540, Department of Economics, University of Bristol, UK.
  29. Raghuram G. Rajan & Luigi Zingales, 2000. "The Firm as a Dedicated Hierarchy: A Theory of the Origin and Growth of Firms," NBER Working Papers 7546, National Bureau of Economic Research, Inc.
  30. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
  31. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, American Economic Association, vol. 62(5), pages 777-95, December.
  32. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts And The Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(1), pages 39-84, February.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Kvaløy, Ola & Olsen, Trond E., 2007. "Cooperation in knowledge-intensive firms," Discussion Papers, Department of Business and Management Science, Norwegian School of Economics 2007/27, Department of Business and Management Science, Norwegian School of Economics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:jjieco:v:22:y:2008:i:2:p:229-241. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.