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...

This paper analyzes relational contracts under moral hazard. We first show that if the available information (signal) about effort satisfies a generalized monotone likelihood ratio property, then irrespective of whether the first-order approach (FOA) is valid or not, the optimal bonus scheme...

The paper analyzes conditions for implementing incentive schemes based on, respectively joint, relative and indendent performance, in a relational contract between a principal and a team of two agents. A main result is that the optimal incentive regime depends on the productivity of the agents,...

When a worker 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 worker's effort, but lead to higher-powered incentive...

We analyze relational contracts for a set of agents when either (a) only aggregate output or (b) individual outputs are observable. A team incentive scheme, where each agent is paid a bonus for aggregate output above a threshold, is optimal in case (a). The team's efficiency may increase...

This paper analyzes relational contracts under moral hazard. We first show that if the available information (signal) about effort satisfies a generalized monotone likelihood ratio property, then irrespective of whether the first-order approach (FOA) is valid or not, the optimal bonus scheme...

This paper analyses and compares optimal relational contracts between a principal/firm and a set of agents when (a) only aggregate output can be observed, and (b) individual outputs can be observed. We show that the optimal contract under (a) is a team incentive scheme where each agent is paid a...