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Distorted Performance Measurement And Relational Contracts

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Author Info
Jörg Budde
Abstract

I analyze the use of alternative performance measures using an agency model that incorporates both formal and informal agreements. I show that under the proper combination of verifiable and unverifiable performance measures, the two types of contract complement each other regardless of the principal’s fallback position. To obtain this complementarity, the principal uses an opting-out clause that allows him to replace part of a piece rate by a predefined bonus. My analysis contrasts with earlier studies, and provides a rationale for the use of subjective information in strategic performance measurement systems.

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Publisher Info
Article provided by LMU Munich School of Management in its journal Schmalenbach Business Review.

Volume (Year): 60 (2008)
Issue (Month): 3 (July)
Pages: 251-273
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Handle: RePEc:sbr:abstra:v:60:y:2008:i:3:p:251-273

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Related research
Keywords: Congruity; Distortion; Opting-Out Clause;

Find related papers by JEL classification:
D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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This page was last updated on 2009-12-6.

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