Relational incentives and moral hazard in teams

Luis Rayo*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

60 Scopus citations

Abstract

This paper studies moral hazard in teams using a model where efforts are promoted via the combination of profit shares and relational contracts. The focus is on how these two forms of incentives interact. According to the degree of effort observability and the importance of future interaction, the optimal allocation of profit shares can range from a wide dispersion across players to a full concentration of shares in the hands of a single player. When shares are sufficiently concentrated, the corresponding residual claimant can also adopt the role of administering all relational contracts, therefore serving as an endogenously chosen principal.

Original languageEnglish (US)
Pages (from-to)937-963
Number of pages27
JournalReview of Economic Studies
Volume74
Issue number3
DOIs
StatePublished - Jul 2007

ASJC Scopus subject areas

  • Economics and Econometrics

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