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Effect of a Manager in Relational Contracts with Multiple Workers

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  • Beomjun Kim

Abstract

This paper considers the optimal management structure about hiring a manager and providing the manager with a separate salary and bonus using a relational contract among an owner, a manager, and workers, assuming that the manager can observe individual worker performances while the owner can observe only overall team performance. I derive optimal contracts for the two cases in which the manage's salary and bonus are integrated into total team bonus or provided separately. I compare situations of having the manager distribute bonuses based on individual worker performance to the situation of equal bonus distribution based on overall team performance without a manager. Only a contract with a manager who receives a separate bonus is feasible for low discount factor. Making the manager to distribute the salary and bonus including himself is best with intermediate discount factor. Providing an equal bonus without a manager is optimal with high discount factor.

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  • Beomjun Kim, 2025. "Effect of a Manager in Relational Contracts with Multiple Workers," Papers 2504.21264, arXiv.org.
    • Handle: RePEc:arx:papers:2504.21264
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    References listed on IDEAS

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    1. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts and the Theory of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 39-84.
    2. Isaiah Andrews & Daniel Barron, 2016. "The Allocation of Future Business: Dynamic Relational Contracts with Multiple Agents," American Economic Review, American Economic Association, vol. 106(9), pages 2742-2759, September.
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