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Optimal Team Contracts

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  • David Andolfatto
  • Ed Nosal

Abstract

In this paper, the authors evaluate certain challenges put forth by Mukesh Eswaran and Ashok Kotwal (1984) and Eric Rasmusen (1987) concerning the legitimacy of Bengt Holmstrom's (1982) proposed solution for the problem of moral hazard in teams. They demonstrate that the argument put forth by Rasmusen hinges on some rather extreme conditions concerning the verifiability of individual actions relating to renegotiation attempts; relaxing these conditions renders efficient budget-balancing contracts infeasible, as argued by Holmstrom. Second, the authors demonstrate that the criticism put forth by Eswaran and Kotwal is invalid, at least if one insists that clandestine deals must satisfy the same incentive-compatibility conditions required of the principal-agent contract proposed by Holmstrom.

Suggested Citation

  • David Andolfatto & Ed Nosal, 1997. "Optimal Team Contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 30(2), pages 385-396, May.
  • Handle: RePEc:cje:issued:v:30:y:1997:i:2:p:385-96
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    Cited by:

    1. Slivinski, Al, 2002. " Team Incentives and Organizational Form," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(2), pages 185-206.
    2. Dow, Gregory K., 2000. "On the Neutrality of Asset Ownership for Work Incentives," Journal of Comparative Economics, Elsevier, vol. 28(3), pages 581-605, September.
    3. Gustavo Ferro & Omar Chisari, 2010. "Tópicos de Economía de la Regulación de los Servicios Públicos," Working Papers hal-00473038, HAL.
    4. Spraggon, John, 2002. "Exogenous targeting instruments as a solution to group moral hazards," Journal of Public Economics, Elsevier, pages 427-456.
    5. Dow, Gregory K. & Putterman, Louis, 2000. "Why capital suppliers (usually) hire workers: what we know and what we need to know," Journal of Economic Behavior & Organization, Elsevier, vol. 43(3), pages 319-336, November.
    6. María Verónica Alderete, 2015. "Redes de pymes: una visión desde las teorías de club y de equipo," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 17(32), pages 317-348, January-J.
    7. Huddart, Steven & Liang, Pierre Jinghong, 2005. "Profit sharing and monitoring in partnerships," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 153-187, December.

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