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Cooperation in knowledge-intensive firms

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Author Info
Kvaløy, Ola () (Norwegian School of Hotel Management, Dept. of Business Administration, University of Stavanger)
Olsen, Trond E. () (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

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Abstract

The extent to which a knowledge-intensive firm should induce cooperation between its employees is analyzed in a model of relational contracting between a firm (principal) and its employees (two agents). The agents can cooperate by helping each other, i.e. provide effort that increases the performance of their peer without affecting their own performance. We extend the existing literature on agent-cooperation by analyzing the implications of incomplete contracts and agent hold-up. A main result is that if the agents' hold-up power is sufficiently high, then it is suboptimal for the principal to implement cooperation, even if helping effort is productive per se. This implies, contrary to many property rights models, that social surplus may suffer if the investing parties (here the agents) are residual claimants. The model also shows that long-term relationships facilitate cooperation even if the agents cannot monitor or punish each others effort choices.

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Publisher Info
Paper provided by Department of Finance and Management Science, Norwegian School of Economics and Business Administration in its series Discussion Papers with number 2007/27.

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Length: 32 pages
Date of creation: 30 Nov 2007
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Handle: RePEc:hhs:nhhfms:2007_027

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Postal: NHH, Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway
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Related research
Keywords: Relational contracts; multiagent moral hazard; endogenous hold-up;

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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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