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Team Incentives in Relational Employment Contracts

Author

Listed:
  • 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.

Suggested Citation

  • Ola Kvaløy & Trond E. Olsen, 2006. "Team Incentives in Relational Employment Contracts," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 139-170, January.
    • Handle: RePEc:ucp:jlabec:v:24:y:2006:i:1:p:139-170
    DOI: 10.1086/497821
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    More about this item

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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