Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/23023
Authors: 
Demougin, Dominique M.
Fabel, Oliver
Year of Publication: 
2004
Series/Report no.: 
Diskussionsbeiträge: Serie 1, Universität Konstanz, Fachbereich Wirtschaftswissenschaften 327
Abstract: 
The current study integrates the repeated game approach to implicit contracts and the analysis of explicit bonus rules based on subjective performance evaluation to determine the optimal structure of the compensation scheme for the average white- collar employee. In contrast to previous contributions we assume that the agent is risk-neutral but liquidity constrained. The salary reflects the maximum reward associated with contractual compliance which can be implicitly agreed. If the probability that the employee remains within the firm increases, the principal can reduce the rent captured by the agent. Hence, the optimal salary increases and the bonus decreases. Nevertheless, the optimal e¤ort supply unambiguously increases.
Subjects: 
White-Collar Employees
Implicit Contract
Explicit Bonus
Reputational Equilibrium
JEL: 
M52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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