Relative performance or team evaluation? Optimal contracts for other-regarding agents

Björn Bartling

Journal of Economic Behavior & Organization, 2011, vol. 79, issue 3, 183-193

Abstract: This paper derives optimal incentive contracts for agents with other-regarding preferences. It offers a behavioral explanation for the empirically observed lack of relative performance evaluation. We analyze a principal-multi agent model and assume that agents are inequity averse or status seeking. We show that team contracts can be optimal even if the agents' performance measures are positively correlated such that relative performance evaluation would be optimal with purely self-interested agents and even though relative performance evaluation provides additional incentives to provide effort if agents have other-regarding preferences. Furthermore, optimal incentive contracts for other-regarding agents can be low-powered as compared to contracts for purely self-interested agents.

Keywords: Other-regarding; preferences; Inequity; aversion; Status; seeking; Relative; performance; evaluation; Low-powered; incentives (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (64)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:79:y:2011:i:3:p:183-193

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