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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. Sloof, Randolph & Sonnemans, Joep, 2011. "The interaction between explicit and relational incentives: An experiment," Games and Economic Behavior, Elsevier, vol. 73(2), pages 573-594.
    2. Sebastian Kranz, 2013. "Relational Contracting, Repeated Negotiations, and Hold-Up," Cowles Foundation Discussion Papers 1888, Cowles Foundation for Research in Economics, Yale University.
    3. 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.
    4. Ola Kvaløy & Trond Olsen, 2014. "Teams and Tournaments in Relational Contracts," CESifo Working Paper Series 4783, CESifo Group Munich.
    5. Goldlücke, Susanne & Kranz, Sebastian, 2012. "Delegation, monitoring, and relational contracts," Economics Letters, Elsevier, vol. 117(2), pages 405-407.
    6. Tim Worrall & Jonathan P Thomas, 2008. "Dynamic Relational Contracts with Consumption Constraints," 2008 Meeting Papers 324, Society for Economic Dynamics.
    7. repec:dgr:uvatin:2009030 is not listed on IDEAS
    8. Goldlücke, Susanne & Kranz, Sebastian, 2013. "Renegotiation-proof relational contracts," Games and Economic Behavior, Elsevier, vol. 80(C), pages 157-178.
    9. James M. Malcomson, 2012. "Relational Incentive Contracts
      [The Handbook of Organizational Economics]
      ," Introductory Chapters, Princeton University Press.
    10. repec:dgr:uvatin:2009027 is not listed on IDEAS
    11. 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.
    12. Sebastian Kranz, 2012. "Discounted Stochastic Games with Voluntary Transfers," Cowles Foundation Discussion Papers 1847, Cowles Foundation for Research in Economics, Yale University.
    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. Goldlücke, Susanne & Kranz, Sebastian, 2012. "Infinitely repeated games with public monitoring and monetary transfers," Journal of Economic Theory, Elsevier, vol. 147(3), pages 1191-1221.
    15. Nick Vikander, 2009. "The Breakdown of Morale," Tinbergen Institute Discussion Papers 09-027/1, Tinbergen Institute.
    16. Ishida, Junichiro, 2009. "Incentives in academics: Collaboration under weak complementarities," Labour Economics, Elsevier, vol. 16(2), pages 215-223, April.

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