What is the best way of providing incentives to a team of agents? Agency theory has given a number of answers in the past three decades on the choice between collective and relative incentive provision. We present a broad overview of this rich literature through a simple model. While the early contributions emphasize the role of performance comparison and competition in motivating agents, more ...

We study the optimal design of incentive contracts for experts in different collusion environments, and explore implications for the organization of delegated expertise. We consider a principal relying on experts to gather and report two signals about a project’s value. The principal can have a single expert gather both signals or two experts gather one signal each. We show that absent collusio...

Partnerships are the prevalent organizational form in many industries. Most partnerships share profits equally among the partners. Following Kandel and Lazear (1992) it is often argued that “peer pressure” mitigates the arising free-rider problem. This line of reasoning takes the equal sharing rule as exogenously given. The purpose of our paper is to show that with inequity averse partners – a ...

We analyze the optimal combination of promotion tournaments and individual performance pay in an employment relationship. An agent’s effort is non-observable and he has private information about his suitability for promotion. Thus, promotion tournaments and individual performance pay need to be combined to serve both incentive and selection purposes. We find that, if it is sufficiently importan...

We study the moral hazard problem without the first-order approach or other common structure. We present sufficient conditions under which the shadow value of simultaneously tightening the minimum payment and individual rationality constraints has a simple and intuitive expression. We then show how this expression can be used to perform comparative statics exercises in which we study (i) the ef...

[preliminary] We compare two problems. One is the monotone Bayesian persuasion problem in which messages are monotone functions of state realizations. Another is the delegation problem with an extra assumption that extreme actions are always permitted. (E.g., an employee may need the employer’s permission to reduce the job involvement to part time, but no permission is needed to remain at full ...

We develop a simple theoretical model of a long term buyer-supplier relationship with non-contractible buyer specific R&D investment, and derive predictions on the effects of trust and competition on suppliers’ investment and buyers’ procurement strategies. We address these issues empirically using unique survey data on individual buyer-supplier relationships in the German automotive industry. ...

We study what kind of equilibria of which mechanisms are ex post renegotiation-proof (EPRP), i.e., robust against the possibility of ex post renegotiation under a variety of renegotiation procedures, and which social choice functions are EPRP implementable. In complete information environments with two agents only budget balanced Groves allocations are EPRP implementable, while with three or mo...

We study a dynamic principal-agent relationship with adverse selection and limited commitment. We show that when the relationship is subject to productivity shocks, the principal may be able to improve her value over time by progressively learning the agent’s private information. She may even achieve her first best payoff in the long-run. The relationship may also exhibit path dependence, with ...

This paper studies the design of unemployment insurance when neither the searching effort nor the savings of an unemployed agent can be monitored. If the principal could monitor the savings, the optimal policy would leave the agent savings-constrained. With a constant absolute risk-aversion (CARA) utility function, we obtain a closed form solution of the optimal contract. Under the optimal cont...