Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/103669 
Year of Publication: 
2008
Citation: 
[Journal:] BuR - Business Research [ISSN:] 1866-8658 [Volume:] 1 [Issue:] 2 [Publisher:] VHB - Verband der Hochschullehrer für Betriebswirtschaft, German Academic Association of Business Research [Place:] Göttingen [Year:] 2008 [Pages:] 165-186
Publisher: 
VHB - Verband der Hochschullehrer für Betriebswirtschaft, German Academic Association of Business Research, Göttingen
Abstract: 
In this paper we analyze a dynamic agency problem where contracting parties do not know the agent's future productivity at the beginning of the relationship. We consider a two-period model where both the agent and the principal observe the agent's second-period productivity at the end of the first period. This observation is assumed to be non-verifiable information. We compare long-term contracts with short-term contracts with respect to their suitability to motivate effort in both periods. On the one hand, short-term contracts allow for a better fine-tuning of second-period incentives as they can be aligned with the agent's second-period productivity. On the other hand, in short-term contracts first-period effort incentives might be distorted as contracts have to be sequentially optimal. Hence, the difference between long-term and short-term contracts is characterized by a trade-off between inducing effort in the first and in the second period. We analyze the determinants of this trade-off and demonstrate its implications for performance measurement and information system design.
Subjects: 
accounting
performance measurement
Persistent Identifier of the first edition: 
Document Type: 
Article

Files in This Item:
File
Size
3.47 MB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.