
Abstract
Previous work on moral-hazard problems has shown that, under certain conditions, bonus contracts create optimal individual incentives for risk-neutral workers. In our paper we demonstrate that, if a firm employs at least two workers, it may further bene.t from combining worker compensation via a bonus-pool contract and relative performance evaluation. Such combination leads to saved rents under a wide class of luck distributions. In addition, if the employer is wealth-constrained, complementing individual bonus contracts by the possibility of pooling bonuses can increase the set of implementable effort levels. All our results hold even though workers’ outputs are technically and stochastically independent so that, in view of Holmstrom’s informativeness principle, individual bonus contracts would be expected to dominate bonus-pool contracts.
Item Type: | Paper |
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Form of publication: | Preprint |
Keywords: | contract; hazard rate; informativeness principle; limited liability; relative performance. |
Faculties: | Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > B4 - Die Gestaltung von Turnieren im Rahmen der Corporate Governance |
Subjects: | 300 Social sciences > 330 Economics |
JEL Classification: | C72, D86 |
URN: | urn:nbn:de:bvb:19-epub-17238-2 |
Language: | English |
Item ID: | 17238 |
Date Deposited: | 09. Oct 2013, 13:06 |
Last Modified: | 04. Nov 2020, 12:59 |