Are you a Good Employee or Simply a Good Guy? Infl?uence Costs and Contract Design

Brice Corgnet and Ismael Rodriguez-Lara

Working Papers from Chapman University, Economic Science Institute

Abstract: We develop a principal-agent model with a moral hazard problem in which the principal has access to a hard signal (the level of output) and a soft signal (the supervision signal) about the agent?s level of effort. We show that the agent?'s ability to manipulate the soft signal increases the cost of implementing the effcient equilibrium, leading to wage compression when the infl?uence cost is privately incurred by the agent. When manipulation activities negatively affect the agent?s productivity through the level of output, the design of infl?uence-free contracts that deter manipulation may lead to high-powered incentives. This result implies that high-productivity workers face incentive schemes that are more sensitive to hard evidence than those faced by their low-productivity counterparts. In that context, the principal will tolerate infl?uence for low-productivity workers but not for high-productivity workers. We also fi?nd that in the case of productivity-based costs, it may be optimal for the principal not to supervise the agent, even if supervision is costless.

Keywords: principal-agent model with supervision; contract design; in?uence activities; manipulation; productivity-based influence costs; power of incentives (search for similar items in EconPapers)
JEL-codes: D23 D82 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2012
New Economics Papers: this item is included in nep-cta, nep-hrm and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.chapman.edu/ESI/wp/Corgnet_GoodEmployeeOrGoodGuy.pdf (application/pdf)

Related works:
Journal Article: Are you a good employee or simply a good guy? Influence costs and contract design (2013)
Working Paper: Are you a good employee or simply a good guy? Influence costs and contract design (2013)
Working Paper: Are you a good employee or simply a good guy? Influence Costs and Contract Design (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:12-02

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