IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Teams and Tournaments in Relational Contracts

  • Kvaløy, Ola

    ()

    (UiS Business School, University of Stavanger)

  • Olsen, Trond E.

    ()

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

This paper analyses and compares optimal relational contracts between a principal/firm and a set of agents when (a) only aggregate output can be observed, and (b) individual outputs can be observed. We show that the optimal contract under (a) is a team incentive scheme where each agent is paid a maximal bonus for aggregate output above a threshold and a minimal (no) bonus otherwise. The team’s efficiency decreases with its size (number of agents) when outputs are non-negatively correlated, but may increase considerably with size if outputs are negatively correlated. In the case where individual output can be observed, we show that the optimal contract is a tournament scheme where the conditions for an agent to obtain the (single) bonus are stricter for negatively compared to positively correlated outputs. We finally show that if agents have bargaining power, firms may deliberately choose to organize production as a team where only aggregate output is observable. The team alternative is more likely to be superior under negatively correlated outputs.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nhh.no/Admin/Public/DWSDownload.aspx?File=%2fFiles%2fFiler%2finstitutter%2ffor%2fdp%2f2013%2f1313.pdf
Our checks indicate that this address may not be valid because: 404 Not Found (http://www.nhh.no/Admin/Public/DWSDownload.aspx?File=%2fFiles%2fFiler%2finstitutter%2ffor%2fdp%2f2013%2f1313.pdf [302 Found]--> http://www.nhh.no/Admin/Public/Download.aspx?file=Files%2fFiler%2finstitutter%2ffor%2fdp%2f2013%2f1313.pdf). If this is indeed the case, please notify (Stein Fossen)


Download Restriction: no

Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2013/13.

as
in new window

Length: 55 pages
Date of creation: 30 Dec 2013
Date of revision:
Handle: RePEc:hhs:nhhfms:2013_013
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.aspxEmail:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers 90-07, Rochester, Business - Managerial Economics Research Center.
  2. Barry J. Nalebuff & Joseph E. Stiglitz, 1983. "Prices and Incentives: Towards a General Theory of Compensation and Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 21-43, Spring.
  3. Heski Bar-Isaac, 2007. "Something to prove: reputation in teams," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 495-511, 06.
  4. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  5. W. Bentley MacLeod & James M. Malcomson, 1986. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Working Papers 585, Queen's University, Department of Economics.
  6. Joaquín Poblete & Daniel Spulber, 2012. "The form of incentive contracts: agency with moral hazard, risk neutrality, and limited liability," RAND Journal of Economics, RAND Corporation, vol. 43(2), pages 215-234, 06.
  7. Barton H. Hamilton & Jack A. Nickerson & Hideo Owan, 2003. "Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 465-497, June.
  8. Bull, Clive, 1987. "The Existence of Self-Enforcing Implicit Contracts," The Quarterly Journal of Economics, MIT Press, vol. 102(1), pages 147-59, February.
  9. Itoh Hideshi, 1993. "Coalitions, Incentives, and Risk Sharing," Journal of Economic Theory, Elsevier, vol. 60(2), pages 410-427, August.
  10. Che,Y.K. & Yoo,S.W., 1998. "Optimal incentives for teams," Working papers 8, Wisconsin Madison - Social Systems.
  11. Mookherjee, Dilip, 1984. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 433-46, July.
  12. Ola Kval�y & Trond E. Olsen, 2006. "Team Incentives in Relational Employment Contracts," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 139-170, January.
  13. Luis Rayo, 2007. "Relational Incentives and Moral Hazard in Teams," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 937-963.
  14. Jerry R. Green & Nancy L. Stokey, 1982. "A Comparison of Tournaments and Contracts," NBER Working Papers 0840, National Bureau of Economic Research, Inc.
  15. McAfee, R Preston & McMillan, John, 1991. "Optimal Contracts for Teams," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 561-77, August.
  16. Thomas Lemieux & W. Bentley MacLeod & Daniel Parent, 2009. "Performance Pay and Wage Inequality-super-," The Quarterly Journal of Economics, MIT Press, vol. 124(1), pages 1-49, February.
  17. Vasconcelos, Luis & Mukherjee, Arijit, 2010. "Optimal Job Design In The Presence Of Implicit Contracts," FEUNL Working Paper Series wp551, Universidade Nova de Lisboa, Faculdade de Economia.
  18. David A. Miller & Joel Watson, 2013. "A Theory of Disagreement in Repeated Games With Bargaining," Econometrica, Econometric Society, vol. 81(6), pages 2303-2350, November.
  19. Macho-Stadler, Ines & Perez-Castrillo, J. David, 1993. "Moral hazard with several agents : The gains from cooperation," International Journal of Industrial Organization, Elsevier, vol. 11(1), pages 73-100, March.
  20. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
  21. Jonathan Levin, 2002. "Multilateral Contracting And The Employment Relationship," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 1075-1103, August.
  22. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
  23. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  24. Itoh, Hideshi, 1991. "Incentives to Help in Multi-agent Situations," Econometrica, Econometric Society, vol. 59(3), pages 611-36, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hhs:nhhfms:2013_013. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stein Fossen)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.