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Pay to Quit and Team Incentives

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  • Pak Hung Au

Abstract

This paper examines the optimal compensation scheme, job design, and severance policy for a team using a model of repeated moral hazard. In the optimal contract, the agent may be paid to quit after a poor performance. We show that a generous severance policy facilitates the adoption of team incentives and team-based production by making it cost-effective to implement peer monitoring and sanction among the agents.

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  • Pak Hung Au, 2020. "Pay to Quit and Team Incentives," Journal of the European Economic Association, European Economic Association, vol. 18(2), pages 964-1008.
    • Handle: RePEc:oup:jeurec:v:18:y:2020:i:2:p:964-1008.
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    File URL: http://hdl.handle.net/10.1093/jeea/jvz011
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    Cited by:

    1. R. Emre Aytimur, 2022. "On the optimality of competition within a team," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(3), pages 673-680, April.

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