Contractual and organizational structure with reciprocal agents
We solve for the optimal contract when agents are reciprocal, demonstrating that generous compensation can substitute for performance-based pay. Our results suggest several factors that make firms more likely to use reciprocal incentives. Reciprocity is most powerful when output is a poor signal of effort and when the agent is highly reciprocal and/or productive. Similarly, reciprocal incentives are attractive when firm managers have strong incentive pay and discretion over employee compensation. While reciprocal incentives can be optimal even when identical firms compete, a reciprocity contract is most likely when one firm has a match-specific productivity advantage with the agent. (JEL D23, D86, J33, M12, M52).
Year of publication: |
2012
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Authors: | Englmaier, Florian ; Leider, Stephen |
Institutions: | Volkswirtschaftliche Fakultät, Ludwig-Maximilians-Universität München |
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