Contractual and organizational structure with reciprocal agents

Englmaier, Florian and Leider, Stephen (2012): Contractual and organizational structure with reciprocal agents. In: American Economic Journal: Microeconomics, Vol. 4, No. 2: pp. 146-183

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).

• Item Type: Journal article
• Form of publication: Publisher's Version
• Faculties: Economics; Economics > Chairs > Seminar for Organizational Economics
• Subjects: 300 Social sciences > 330 Economics
• ISSN: 1945-7669
• Language: English