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Managerial beliefs and incentive policies

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  • Kim, Jaesoo

Abstract

This article examines incentive contracts under moral hazard when a principal and agents disagree about the likelihood that a task will succeed. The direction of disagreement alters the effectiveness of monetary incentives. The principal's optimal contract is a relative performance evaluation when she is more optimistic than the agents, and a joint performance evaluation when she is less optimistic. We further show why disagreement may prevail in organizations by considering a simple job assignment problem.

Suggested Citation

  • Kim, Jaesoo, 2015. "Managerial beliefs and incentive policies," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 84-95.
  • Handle: RePEc:eee:jeborg:v:119:y:2015:i:c:p:84-95
    DOI: 10.1016/j.jebo.2015.08.001
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    References listed on IDEAS

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    Cited by:

    1. Luca Livio, 2018. "Friends or Foes? Optimal Incentives for Reciprocal Agents," Working Papers ECARES 2018-03, ULB -- Universite Libre de Bruxelles.
    2. Jacky Chin & Shu-Chiang Lin, 2016. "A Behavioral Model of Managerial Perspectives Regarding Technology Acceptance in Building Energy Management Systems," Sustainability, MDPI, Open Access Journal, vol. 8(7), pages 1-13, July.

    More about this item

    Keywords

    Incentives; Contracts; Disagreement; Heterogeneous beliefs; Job assignment;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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