The Optimality of Team Contracts

Mehmet Barlo () and Ayça Özdoğan
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Ayça Özdoğan: Department of Economics, TOBB University of Economics and Technology, Sögütözü Cad. No. 43, Sögütözü, Ankara 06560, Turkey

Games, 2013, vol. 4, issue 4, 1-20

Abstract: This paper analyzes optimal contracts in a linear hidden-action model with normally distributed returns possessing two moments that are governed jointly by two agents who have negative exponential utilities. They can observe and verify each others’ effort levels and draft enforceable side-contracts on effort levels and realized returns. Standard constraints, resulting in incentive contracts, fail to ensure implementability, and we examine centralized collusion-proof contracts and decentralized team contracts, as well. We prove that the principal may restrict attention to team contracts whenever returns from the project satisfy a mild monotonicity condition.

Keywords: principal-agent problems; linear contracts; collusion; team; decentralization (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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