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"Yes men", integrity, and the optimal design of incentive contracts

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  • Ewerhart, Christian
  • Schmitz, Patrick W.

Abstract

In a pioneering approach towards the explanation of the phenomenon of "yes man" behavior in organizations, Prendergast (1993) argued that incentive contracts in employment relationships generally make a worker distort his privately acquired information. This would imply that there is a trade-off between inducing a worker to exert costly effort and inducing him to tell the truth. In contrast, we show that with optimally designed contracts, which we term integrity contracts, the worker will both exert effort and report his information truthfully, and that hence the first best can be achieved.
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  • Ewerhart, Christian & Schmitz, Patrick W., 2000. ""Yes men", integrity, and the optimal design of incentive contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 43(1), pages 115-125, September.
  • Handle: RePEc:eee:jeborg:v:43:y:2000:i:1:p:115-125
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    Cited by:

    1. Wolfgang R. Köhler, 2004. "Optimal Incentive Contracts for Experts," Bonn Econ Discussion Papers bgse6_2004, University of Bonn, Germany.
    2. Kräkel, Matthias, 2006. "Firm Size, Economic Situation and Influence Activities," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 167, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    3. Ottaviani, Marco & Sorensen, Peter Norman, 2006. "Professional advice," Journal of Economic Theory, Elsevier, vol. 126(1), pages 120-142, January.
    4. Schmitz, Patrick W, 2001. "The Hold-up Problem and Incomplete Contracts: A Survey of Recent Topics in Contract Theory," Bulletin of Economic Research, Wiley Blackwell, vol. 53(1), pages 1-17, January.
    5. Christian Laux, 2001. "Delegated Information Acquisition and Capital Budgeting: On the Separation of Project Evaluation and Project Management," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(4), pages 591-591, December.
    6. Haita-Falah, Corina & Gerber, Anke & Lange, Andreas, 2015. "The Agency of Politics and Science," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113227, Verein für Socialpolitik / German Economic Association.
    7. Marco Ottaviani & Peter Norman Sorensen, 2002. "Professional Advice: The Theory of Reputational Cheap Talk," Discussion Papers 02-05, University of Copenhagen. Department of Economics.
    8. Christian Ewerhart, 2014. "Mixed equilibrium in a pure location game: the case of n ≥ 4 firms," ECON - Working Papers 168, Department of Economics - University of Zurich.

    More about this item

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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