Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93928
Authors: 
Imhof, Lorens
Kräkel, Matthias
Year of Publication: 
2013
Series/Report no.: 
SFB/TR 15 Discussion Paper 413
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.
Subjects: 
contract
hazard rate
informativeness principle
limited liability
relative performance
JEL: 
C72
D86
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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