The tenuous relationship between effort and performance pay

Ola Kvaløy and Trond Olsen

Journal of Public Economics, 2015, vol. 121, issue C, 32-39

Abstract: When an agent is offered performance related pay, the incentive effect is not only determined by the shape of the incentive contract, but also by the probability of contract enforcement. We show that weaker enforcement may reduce the agent's effort, but lead to higher-powered incentive contracts. This creates a seemingly negative relationship between effort and performance pay.

Keywords: Incentives; Performance pay; Contract enforcement (search for similar items in EconPapers)
JEL-codes: D86 M52 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The Tenuous Relationship between Effort and Performance Pay (2012)
Working Paper: The Tenuous Relationship between Effort and Performance Pay (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:121:y:2015:i:c:p:32-39

DOI: 10.1016/j.jpubeco.2014.10.007

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