Managerial beliefs and incentive policies

Jaesoo Kim ()

Journal of Economic Behavior & Organization, 2015, vol. 119, issue C, 84-95

Abstract: This article examines incentive contracts under moral hazard when a principal and agents disagree about the likelihood that a task will succeed. The direction of disagreement alters the effectiveness of monetary incentives. The principal's optimal contract is a relative performance evaluation when she is more optimistic than the agents, and a joint performance evaluation when she is less optimistic. We further show why disagreement may prevail in organizations by considering a simple job assignment problem.

Keywords: Incentives; Contracts; Disagreement; Heterogeneous beliefs; Job assignment (search for similar items in EconPapers)
JEL-codes: D2 J3 L2 M5 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:119:y:2015:i:c:p:84-95

DOI: 10.1016/j.jebo.2015.08.001

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