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Cooperation in knowledge-intensive firms

  • Kvaløy, Ola

    ()

    (Norwegian School of Hotel Management, Dept. of Business Administration, University of Stavanger)

  • Olsen, Trond E.

    ()

    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

The extent to which a knowledge-intensive firm should induce cooperation between its employees is analyzed in a model of relational contracting between a firm (principal) and its employees (two agents). The agents can cooperate by helping each other, i.e. provide effort that increases the performance of their peer without affecting their own performance. We extend the existing literature on agent-cooperation by analyzing the implications of incomplete contracts and agent hold-up. A main result is that if the agents' hold-up power is sufficiently high, then it is suboptimal for the principal to implement cooperation, even if helping effort is productive per se. This implies, contrary to many property rights models, that social surplus may suffer if the investing parties (here the agents) are residual claimants. The model also shows that long-term relationships facilitate cooperation even if the agents cannot monitor or punish each others effort choices.

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Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2007/27.

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Length: 32 pages
Date of creation: 30 Nov 2007
Date of revision:
Handle: RePEc:hhs:nhhfms:2007_027
Contact details of provider: Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
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