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Team Incentives in Relational Employment Contracts

  • Ola Kvaløy

    (University of Stavanger)

  • Trond E. Olsen

    (Norwegian School of Economics and Business Administration)

The article analyzes conditions for implementing incentive schemes based on, respectively, joint, relative, and independent performance in a relational contract between a principal and a team of two interacting agents. A main result is that the optimal incentive regime depends crucially on the productivity of the agents. This occurs because agents' productivities affect the principal's temptation to renege on the relational contract. The analysis suggests that we will see a higher frequency of relative performance evaluationand schemes that lie close to independent performance evaluationas we move from low-productive to high-productive environments.

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Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 24 (2006)
Issue (Month): 1 (January)
Pages: 139-170

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Handle: RePEc:ucp:jlabec:v:24:y:2006:i:1:p:139-170
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  19. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
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