Are you a Good Employee or Simply a Good Guy? Infl?uence Costs and Contract Design
AbstractWe develop a principal-agent model with a moral hazard problem in which the principal has access to a hard signal (the level of output) and a soft signal (the supervision signal) about the agent?s level of effort. We show that the agent?'s ability to manipulate the soft signal increases the cost of implementing the effcient equilibrium, leading to wage compression when the infl?uence cost is privately incurred by the agent. When manipulation activities negatively affect the agent?s productivity through the level of output, the design of infl?uence-free contracts that deter manipulation may lead to high-powered incentives. This result implies that high-productivity workers face incentive schemes that are more sensitive to hard evidence than those faced by their low-productivity counterparts. In that context, the principal will tolerate infl?uence for low-productivity workers but not for high-productivity workers. We also fi?nd that in the case of productivity-based costs, it may be optimal for the principal not to supervise the agent, even if supervision is costless.
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Bibliographic InfoPaper provided by Chapman University, Economic Science Institute in its series Working Papers with number 12-02.
Length: 45 pages
Date of creation: 2012
Date of revision:
principal-agent model with supervision; contract design; in?uence activities; manipulation; productivity-based influence costs; power of incentives;
Other versions of this item:
- Brice Corgnet & Ismael Rodriguez Lara, 2009. "Are you a good employee or simply a good guy? Influence Costs and Contract Design," Faculty Working Papers 13/09, School of Economics and Business Administration, University of Navarra.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-27 (All new papers)
- NEP-CTA-2012-02-27 (Contract Theory & Applications)
- NEP-HRM-2012-02-27 (Human Capital & Human Resource Management)
- NEP-LAB-2012-02-27 (Labour Economics)
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