Contract Incentives and Effort

Peter Chinloy and Daniel Winkler

Journal of Real Estate Research, 2010, vol. 32, issue 4, 397-412

Abstract: In a prevailing employment contract the agent receives a proportional split of commissions. Alternatively, the agent receives a contract paying 100% of revenue above a fixed payment to the firm. In this contract the firm has a prior payment position, similar to a landlord or lender. The coexistence of these equity-only and debt-equity type contracts allows testing incentives for productivity and effort for real estate licensees in the United States. Hourly wages and productivity are increasing in the agent's split, up to and including 100%. Effort as measured by hours worked are positively affected by the split. The contract incentives motivate productivity and induce effort without requiring monitoring.

Date: 2010
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DOI: 10.1080/10835547.2010.12091290

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