How should a principal reward and support agents when firm performance is characterized by success or failure?

Christian Schmid and Yigal Gerchak

Managerial and Decision Economics, 2019, vol. 40, issue 4, 353-362

Abstract: Principal‐agent models with multiple agents typically assume that the principal wishes to maximize the sum of the agents' achievements (net of the rewards paid to them). But in many settings, like R&D, all that the principal “needs” is that at least one agent will be “successful.” We identify settings where the principal actually wants agents to refrain from exerting high effort in order to save expected compensation. We show that the number of agents can decrease in the project's value for the principal. We also consider sequential efforts and investigate settings where the principal can provide support to agents.

Date: 2019
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https://doi.org/10.1002/mde.3006

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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:40:y:2019:i:4:p:353-362

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