Contracting With Synergies
AbstractThis paper studies multi-agent optimal contracting with cost synergies. We model synergies as the extent to which effort by one agent reduces his colleague's marginal cost of effort. An agent's pay and effort depend on the synergies he exerts, the synergies his colleagues exert on him and, surprisingly, the synergies his colleagues exert on each other. It may be optimal to "over-work" and "over-incentivize" a synergistic agent, due to the spillover effect on his colleagues. This result can rationalize the high pay differential between CEOs and divisional managers. An increase in the synergy between two particular agents can lead to a third agent being endogenously excluded from the team, even if his own synergy is unchanged. This result has implications for optimal team composition and firm boundaries.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9559.
Date of creation: Jul 2013
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Other versions of this item:
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-28 (All new papers)
- NEP-BEC-2013-09-28 (Business Economics)
- NEP-CTA-2013-09-28 (Contract Theory & Applications)
- NEP-HPE-2013-09-28 (History & Philosophy of Economics)
- NEP-HRM-2013-09-28 (Human Capital & Human Resource Management)
- NEP-MIC-2013-09-28 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Xavier Gabaix & Augustin Landier, 2008.
"Why Has CEO Pay Increased So Much?,"
The Quarterly Journal of Economics,
MIT Press, vol. 123(1), pages 49-100, 02.
- Marko Tervio, 2008. "The Difference That CEOs Make: An Assignment Model Approach," American Economic Review, American Economic Association, vol. 98(3), pages 642-68, June.
- Simon Gervais & Itay Goldstein, 2007. "The Positive Effects of Biased Self-Perceptions in Firms," Review of Finance, European Finance Association, vol. 11(3), pages 453-496.
- JÃ³zsef SÃ¡kovics & Jakub Steiner, 2012.
"Who Matters in Coordination Problems?,"
American Economic Review,
American Economic Association, vol. 102(7), pages 3439-61, December.
- Steiner, Jakub & Sakovics, Jozsef, 2008. "Who Matters in Coordination Problems?," SIRE Discussion Papers 2008-27, Scottish Institute for Research in Economics (SIRE).
- Jozsef Sakovics & Jakub Steiner, 2009. "Who Matters in Coordination Problems?," ESE Discussion Papers 190, Edinburgh School of Economics, University of Edinburgh.
- Wouter Dessein & Luis Garicano & Robert Gertner, 2010.
"Organizing for Synergies,"
American Economic Journal: Microeconomics,
American Economic Association, vol. 2(4), pages 77-114, November.
- Bengt Holmstrom, 1982.
"Moral Hazard in Teams,"
Bell Journal of Economics,
The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
- repec:rje:randje:v:37:y:2006:2:p:376-390 is not listed on IDEAS
- Bergman, Nittai K. & Jenter, Dirk, 2007.
"Employee sentiment and stock option compensation,"
Journal of Financial Economics,
Elsevier, vol. 84(3), pages 667-712, June.
- Eyal Winter, 2006. "Optimal incentives for sequential production processes," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 376-390, 06.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.