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Teams in Relational Contracts

Author

Listed:
  • Kvaløy, Ola

    (UiS Business School, University of Stavanger)

  • Olsen, Trond E.

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

Abstract

We analyze relational contracting between a principal and a team of agents where only aggregate output is observable. We deduce optimal team incentive contracts under di¤erent set of assumptions, and show that the principal can use team size and team composition as instruments in order to improve incentives. In particular, the principal can strengthen the agents' incentives by composing teams that utilize stochastic dependencies between the agents' outputs. We also show that more agents in the team may under certain conditions increase each team member's effort incentives, in particular if outputs are negatively correlated.

Suggested Citation

  • Kvaløy, Ola & Olsen, Trond E., 2016. "Teams in Relational Contracts," Discussion Papers 2016/23, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2016_023
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    File URL: http://hdl.handle.net/11250/2425349
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    References listed on IDEAS

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    Cited by:

    1. J. Miguel Villas-Boas, 2020. "Repeated Interaction in Teams: Tenure and Performance," Management Science, INFORMS, vol. 66(3), pages 1496-1507, March.

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    More about this item

    Keywords

    Relational contracts; team incentive scheme;

    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D20 - Microeconomics - - Production and Organizations - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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