TY - JOUR
T1 - Relational incentives and moral hazard in teams
AU - Rayo, Luis
N1 - Funding Information:
Acknowledgements. I am grateful to my Ph.D. advisors Douglas Bernheim and Jonathan Levin. I also thank Ilya Segal, Steven Tadelis, Miguel Diaz, job-market participants, Editor Juuso Välimäki, and two anonymous referees. For financial support, I thank the University of Chicago Graduate School of Business.
Copyright:
Copyright 2008 Elsevier B.V., All rights reserved.
PY - 2007/7
Y1 - 2007/7
N2 - 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.
AB - 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.
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U2 - 10.1111/j.1467-937X.2007.00443.x
DO - 10.1111/j.1467-937X.2007.00443.x
M3 - Article
AN - SCOPUS:34250719213
SN - 0034-6527
VL - 74
SP - 937
EP - 963
JO - Review of Economic Studies
JF - Review of Economic Studies
IS - 3
ER -