We analyze optimal incentive contracts in a model where the probability of court enforcement is determined by the costs spent on contracting. We show that contract costs matter for incentive provision, both in static spot contracts and repeated game relational contracts. We find that social...

Reward systems based on balanced scorecards typically connect pay to an index, i.e. a weighted sum of multiple performance measures. We show that such an index contract may indeed be optimal if performance measures are non-verifiable so that the contracting parties must rely on self-enforcement....

Reward systems based on balanced scorecards typically connect pay to an index, i.e. a weighted sum of multiple performance measures. However, there is no formal incentive model that actually describe this kind of index contracts as an optimal solution. In this paper, we show that an index...

Principal-agent models usually invoke the strong assumption that the parties know ex ante for sure whether a variable is verifiable or not. In this paper we assume that only the probability of verification is known, and that this probability is endogenously determined. We analyze a...

Reward systems based on balanced scorecards typically connect pay to an index, i.e. a weighted sum of multiple performance measures. We show that such an index contract may indeed be optimal if performance measures are non-verifiable so that the contracting parties must rely on self-enforcement....