The tenuous relationship between effort and performance pay

When an agent is offered performance related pay, the incentive effect is not only determined by the shape of the incentive contract, but also by the probability of contract enforcement. We show that weaker enforcement may reduce the agent's effort, but lead to higher-powered incentive contracts. This creates a seemingly negative relationship between effort and performance pay.

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Year of publication:	2015
Authors:	Kvaløy, Ola ; Olsen, Trond E.
Published in:	Journal of Public Economics. - Elsevier, ISSN 0047-2727. - Vol. 121.2015, C, p. 32-39
Publisher:	Elsevier
Subject:	Incentives \| Performance pay \| Contract enforcement

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Type of publication:	Article
Classification:	D86 - Economics of Contract: Theory ; M52 - Compensation and Compensation Methods and Their Effects (stock options, fringe benefits, incentives, family support programs)
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011190978