Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96886
Authors: 
Kvaløy, Ola
Olsen, Trond
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4783
Abstract: 
We analyze relational contracts for a set of agents when either (a) only aggregate output or (b) individual outputs are observable. A team incentive scheme, where each agent is paid a bonus for aggregate output above a threshold, is optimal in case (a). The team’s efficiency may increase considerably with size if outputs are negatively correlated. Under (b) a tournament scheme with a threshold is optimal, where the threshold, for correlated outputs, depends on an agent’s relative performance. The two cases reveal that it may be optimal to organize production as a team where only aggregate output is observable.
Subjects: 
relational contracts
teams
tournaments
JEL: 
D89
J29
L23
M52
Document Type: 
Working Paper

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