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Team Incentives in Relational Employment Contracts

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  • Ola Kvaløy

    (University of Stavanger)

  • Trond E. Olsen

    (Norwegian School of Economics and Business Administration)

Abstract

The article analyzes conditions for implementing incentive schemes based on, respectively, joint, relative, and independent performance in a relational contract between a principal and a team of two interacting agents. A main result is that the optimal incentive regime depends crucially on the productivity of the agents. This occurs because agents' productivities affect the principal's temptation to renege on the relational contract. The analysis suggests that we will see a higher frequency of relative performance evaluationand schemes that lie close to independent performance evaluationas we move from low-productive to high-productive environments.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 24 (2006)
Issue (Month): 1 (January)
Pages: 139-170
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Handle: RePEc:ucp:jlabec:v:24:y:2006:i:1:p:139-170

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References

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  1. Monika Schnitzer, 1994. "The Interaction of Explicit and Implicit Contracts," Discussion Paper Serie A 452, University of Bonn, Germany.
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  18. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
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Citations

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Cited by:
  1. Bouwe R. Dijkstra & Dirk T.G. Rübbelke, 2007. "Group Rewards and Individual Sanctions in Environmental Policy," Working Papers 2007.44, Fondazione Eni Enrico Mattei.
  2. Ola Kvaløy & Trond E. Olsen, 2008. "Cooperation in Knowledge-Intensive Firms," Journal of Human Capital, University of Chicago Press, vol. 2(4), pages 410-440.
  3. Ola Kvaløy & Trond E. Olsen, 2008. "Relative performance evaluation, agent hold-up and firm organization," NBER Chapters, in: Organizational Innovation and Firm Performance, pages 229-241 National Bureau of Economic Research, Inc.
  4. Jianpei Li, 2009. "Team production with inequity-averse agents," Portuguese Economic Journal, Springer, vol. 8(2), pages 119-136, August.
  5. David A. Miller & Kareen Rozen, 2011. "Optimally Empty Promises and Endogenous Supervision," Levine's Working Paper Archive 786969000000000270, David K. Levine.
  6. Nick Vikander, 2009. "The Breakdown of Morale," Tinbergen Institute Discussion Papers 09-027/1, Tinbergen Institute.
  7. Arijit Mukherjee & Luis Vasconcelos, 2011. "Optimal job design in the presence of implicit contracts," RAND Journal of Economics, RAND Corporation, vol. 42(1), pages 44-69, 03.
  8. Randolph Sloof & Joep Sonnemans, 2009. "The Interaction between Explicit and Relational Incentives: An Experiment," Tinbergen Institute Discussion Papers 09-030/1, Tinbergen Institute.
  9. James M. Malcomson, 2010. "Relational Incentive Contracts," Economics Series Working Papers 508, University of Oxford, Department of Economics.
  10. Kvaløy, Ola & Olsen, Trond E., 2006. "The rise of individual performance pay," Discussion Papers 2006/22, Department of Finance and Management Science, Norwegian School of Economics.
  11. Kohei Daido & Takeshi Murooka, 2011. "Team Incentives and Reference-Dependent Preferences," Discussion Paper Series 70, School of Economics, Kwansei Gakuin University, revised May 2011.

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