On the optimality of linear contracts to induce goal-congruent investment behaviour

It has become increasingly popular in practice to implement incentive systems that create goal-congruent investment behaviour between central and divisional management. In the following paper, it is shown that only linear contracts enable goal-congruent investment decisions if central management does not have information about the investment project. This might cast a new light on why linear compensation schemes are often used in practice.

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Year of publication:	2005
Authors:	Pfeiffer, Thomas ; Velthuis, Louis
Published in:	Applied Economics Letters. - Taylor & Francis Journals, ISSN 1350-4851. - Vol. 12.2005, 4, p. 207-211
Publisher:	Taylor & Francis Journals

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005437667