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Relational Incentives and Moral Hazard in Teams

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  • Luis Rayo
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    Abstract

    This paper studies moral hazard in teams using a model where efforts are promoted via the combination of profit shares and relational contracts. The focus is on how these two forms of incentives interact. According to the degree of effort observability and the importance of future interaction, the optimal allocation of profit shares can range from a wide dispersion across players to a full concentration of shares in the hands of a single player. When shares are sufficiently concentrated, the corresponding residual claimant can also adopt the role of administering all relational contracts, therefore serving as an endogenously chosen principal. Copyright 2007, Wiley-Blackwell.

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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2007.00443.x
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    Bibliographic Info

    Article provided by Oxford University Press in its journal The Review of Economic Studies.

    Volume (Year): 74 (2007)
    Issue (Month): 3 ()
    Pages: 937-963

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    Handle: RePEc:oup:restud:v:74:y:2007:i:3:p:937-963

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    Cited by:
    1. Tim Worrall & Jonathan P Thomas, 2008. "Dynamic Relational Contracts with Consumption Constraints," 2008 Meeting Papers 324, Society for Economic Dynamics.
    2. David A. Miller & Joel Watson, 2013. "A Theory of Disagreement in Repeated Games With Bargaining," Econometrica, Econometric Society, vol. 81(6), pages 2303-2350, November.
    3. Randolph Sloof & Joep Sonnemans, 2009. "The Interaction between Explicit and Relational Incentives: An Experiment," Tinbergen Institute Discussion Papers 09-030/1, Tinbergen Institute.
    4. Kranz, Sebastian, 2013. "Relational Contracting, Repeated Negotiations, and Hold-Up," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80047, Verein für Socialpolitik / German Economic Association.
    5. James Malcomson, 2010. "Relational Incentive Contracts," Economics Series Working Papers 508, University of Oxford, Department of Economics.
    6. Sebastian Kranz, 2012. "Discounted Stochastic Games with Voluntary Transfers," Levine's Working Paper Archive 786969000000000423, David K. Levine.
    7. Goldlücke, Susanne & Kranz, Sebastian, 2013. "Renegotiation-proof relational contracts," Games and Economic Behavior, Elsevier, vol. 80(C), pages 157-178.
    8. Ishida, Junichiro, 2009. "Incentives in academics: Collaboration under weak complementarities," Labour Economics, Elsevier, vol. 16(2), pages 215-223, April.
    9. Sebastian Kranz, 2013. "Relational Contracting, Repeated Negotiations, and Hold-Up," Levine's Working Paper Archive 786969000000000676, David K. Levine.
    10. Goldlücke, Susanne & Kranz, Sebastian, 2012. "Delegation, monitoring, and relational contracts," Economics Letters, Elsevier, vol. 117(2), pages 405-407.
    11. Saak, Alexander E., 2013. "Traceability and Reputation in Supply Chains," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149988, Agricultural and Applied Economics Association.
    12. Kvaløy, Ola & Olsen, Trond E., 2013. "Teams and Tournaments in Relational Contracts," Discussion Papers 2013/13, Department of Business and Management Science, Norwegian School of Economics.
    13. Hajime Kobayashi & Katsunori Ohta & Tadashi Sekiguchi, 2008. "Optimal Sharing Rules in Repeated Partnerships," KIER Working Papers 650, Kyoto University, Institute of Economic Research.
    14. repec:dgr:uvatin:2009030 is not listed on IDEAS
    15. Goldluecke, Susanne & Kranz, Sebastian, 2010. "In?nitely Repeated Games with Public Monitoring and Monetary Transfers," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 332, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    16. Nick Vikander, 2009. "The Breakdown of Morale," Tinbergen Institute Discussion Papers 09-027/1, Tinbergen Institute.
    17. repec:dgr:uvatin:2009027 is not listed on IDEAS

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