development. Tournament-based contracts can be very effective in eliciting high effort, often outperforming other compensation … contracts, but they can also have negative consequences for both managers and workers. The benefits and disadvantages of …

contracts (i.e., informal agreements sustained by the shadow of the future). We argue that one of the reasons these practices … may be difficult to copy is that effective relational contracts must solve the twin problems of credibility and clarity … with credibility in complex ways, so that relational contracts may often be difficult to build …

Tournaments, reward structures based on rank order, are compared with individual contracts in a model with one risk … absence of a common shock, using optimal independent contracts dominates using the optimal tournament. Conversely, if the … contracts. Finally, it is shown that for a sufficiently large number of agents, a principal who cannot observe the common shock …