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Endogenous leadership in incentive contracts

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  • Kim, Jaesoo

Abstract

We study the effect of leadership on incentive contracts in a moral-hazard framework. In our model, agents are allowed to choose the timing of their actions. The agents may choose their effort levels simultaneously or sequentially. We show that relative performance evaluation leads to a subgame in which agents make simultaneous effort choices, whereas joint performance evaluation yields a subgame in which agents make sequential effort choices. Since agents exert more effort in the sequential game, the principal uses joint performance evaluation to induce the leader–follower relationship among agents.

Suggested Citation

  • Kim, Jaesoo, 2012. "Endogenous leadership in incentive contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 256-266.
  • Handle: RePEc:eee:jeborg:v:82:y:2012:i:1:p:256-266
    DOI: 10.1016/j.jebo.2012.02.006
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    References listed on IDEAS

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    Cited by:

    1. Kim, Jaesoo, 2015. "Managerial beliefs and incentive policies," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 84-95.

    More about this item

    Keywords

    Principal-agent model; Leadership; Precommitment; Endogenous timing; Team-based rewards;

    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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