This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Subjective evaluation, ambiguity and relational contracts

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Brigitte Godbillon-Camus () (Laboratoire de Recherche en Gestion et Economie, Institut d'Etudes Politiques, Strasbourg)
Abstract

The current theoretical literature on contracts with compensation system based on subjective performance measures (Prendergast [1999]) which deals with the principal-agent relationship with moral hazard, assumes that these measures have the advantage of giving a more comprehensive view of the agent's performance but the disadvantage of being impossible to verify by a third party. However, the vagueness of the subjective evaluations is not considered. This paper introduces therefore this characteristic of the subjective performance measure of being vague for the agent. To formalize this vagueness, we add to the basic agency model the assumption that there are several signals available as subjective measure and that the agent does not receive enough information to form a unique prior on the set of signals. Hence the agent has ambiguous beliefs on principal's reference signal. We show then that the efficiency and credibility properties of the combination of formal and relational contracts, with the formal contract based on objective evaluations and the relational contract based on subjective evaluations, are no longer satisfied and depend on the agent’s behavior with regard to ambiguity.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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.

File URL: http://ifs.u-strasbg.fr/large/publications/2003/2003-03.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Laboratoire de Recherche en Gestion et Economie, Université de Strasbourg (France) in its series Working Papers of LaRGE (Laboratoire de Recherche en Gestion et Economie) with number 2003-03.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 2003
Date of revision:
Handle: RePEc:lar:wpaper:2003-03

Contact details of provider:
Postal: 61, Avenue de la For�t Noire, F-67085 Strasbourg Cedex
Phone: (33) 3 90 41 41 30
Fax: (33) 3 90 41 40 50
Web page: http://ifs.u-strasbg.fr/large/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Christophe J. Godlewski).

Related research
Keywords: Ambiguity; moral hazard; relational contract; subjective evaluation.;

Other versions of this item:

Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

References listed on IDEAS
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.:

  1. Gilboa Itzhak & Schmeidler David, 1993. "Updating Ambiguous Beliefs," Journal of Economic Theory, Elsevier, vol. 59(1), pages 33-49, February. [Downloadable!] (restricted)
    Other versions:
  2. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-28, March. [Downloadable!] (restricted)
    Other versions:
  3. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April. [Downloadable!] (restricted)
  4. Pearce, David G. & Stacchetti, Ennio, 1998. "The Interaction of Implicit and Explicit Contracts in Repeated Agency," Games and Economic Behavior, Elsevier, vol. 23(1), pages 75-96, April. [Downloadable!] (restricted)
  5. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1125-56, November. [Downloadable!] (restricted)
    Other versions:
  6. Ghirardato, Paolo & Marinacci, Massimo, 2000. "Range Convexity and Ambiguity Averse Preferences," Working Papers 1081, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  7. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May. [Downloadable!] (restricted)
  8. Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March. [Downloadable!] (restricted)
  9. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts And The Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 39-84, February. [Downloadable!] (restricted)
  10. Bull, Clive, 1987. "The Existence of Self-Enforcing Implicit Contracts," The Quarterly Journal of Economics, MIT Press, vol. 102(1), pages 147-59, February. [Downloadable!] (restricted)
  11. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January. [Downloadable!] (restricted)
    Other versions:
  12. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March. [Downloadable!] (restricted)
  13. Fellingham, John C. & Newman, D. Paul & Suh, Yoon S., 1985. "Contracts without memory in multiperiod agency models," Journal of Economic Theory, Elsevier, vol. 37(2), pages 340-355, December. [Downloadable!] (restricted)
  14. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring. [Downloadable!] (restricted)
  15. Rigotti, L., 1998. "Imprecise beliefs in a principal agent model," Discussion Paper 128, Tilburg University, Center for Economic Research. [Downloadable!]
Full references

Statistics
Access and download statistics

Did you know? IDEAS also indexes book chapters.

This page was last updated on 2009-12-10.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.