Optimal contracts for lenient supervisors

Thomas Giebe and Oliver Gürtler

Journal of Economic Behavior & Organization, 2012, vol. 81, issue 2, 403-420

Abstract: We analyze optimal contracts in a hierarchy consisting of a principal, a supervisor and an agent. The supervisor is either neutral or altruistic towards the agent, but his preferences are private information. In a model with two supervisor types, we find that the optimal contract may be very simple, paying the supervisor a flat wage independent of his type and his evaluation of the agent's effort. Such a contract induces the neutral type of supervisor to report the agent's performance truthfully, while the altruistic type reports favorably independent of performance. Accordingly, overstated performance (leniency bias) may be the outcome of an optimal contract under informational asymmetries.

Keywords: Subjective performance evaluation; Leniency; Supervisor; Private information (search for similar items in EconPapers)
JEL-codes: D82 D86 J33 M52 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (33)

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Working Paper: Optimal Contracts for Lenient Supervisors (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:81:y:2012:i:2:p:403-420

DOI: 10.1016/j.jebo.2011.11.003

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