American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Contractual and Organizational Structure with Reciprocal Agents
American Economic Journal: Microeconomics
vol. 4,
no. 2, May 2012
(pp. 146–83)
Abstract
We solve for the optimal contract when agents are reciprocal, demonstrating that generous compensation can substitute for performance-based pay. Our results suggest several factors that make firms more likely to use reciprocal incentives. Reciprocity is most powerful when output is a poor signal of effort and when the agent is highly reciprocal and/or productive. Similarly, reciprocal incentives are attractive when firm managers have strong incentive pay and discretion over employee compensation. While reciprocal incentives can be optimal even when identical firms compete, a reciprocity contract is most likely when one firm has a match-specific productivity advantage with the agent. (JEL D23, D86, J33, M12, M52)Citation
Englmaier, Florian, and Stephen Leider. 2012. "Contractual and Organizational Structure with Reciprocal Agents." American Economic Journal: Microeconomics, 4 (2): 146–83. DOI: 10.1257/mic.4.2.146JEL Classification
- D23 Organizational Behavior; Transaction Costs; Property Rights
- D86 Economics of Contract: Theory
- J33 Compensation Packages; Payment Methods
- M12 Personnel Management; Executive Compensation
- M52 Personnel Economics: Compensation and Compensation Methods and Their Effects
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