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Title:The rise of individual performance pay PDF Logo
Authors:Kvaloy, Ola
Olsen, Trond
Issue Date:2007
Series/Report no.:CESifo working paper 2145
Abstract:Why does individual performance pay seem to prevail in human capital intensive industries? We present a model that may explain this. In a repeated game model of relational contracting, we analyze the conditions for implementing peer dependent incentive regimes when agents possess indispensable human capital. We show that the larger the share of values that the agents can hold-up, the lower is the implementable degree of peer dependent incentives. In a setting with team effects — complementary tasks and peer pressure, respectively — we show that while team-based incentives are optimal if agents are dispensable, it may be costly, and in fact suboptimal, to provide team incentives once the agents become indispensable.
Subjects:relational contracts
multiagent moral hazard
indispensable human capital
JEL:D23
J33
L14
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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