Teams and Tournaments in Relational Contracts

Ola Kvaløy and Trond Olsen

No 4783, CESifo Working Paper Series from CESifo

Abstract: We analyze relational contracts for a set of agents when either (a) only aggregate output or (b) individual outputs are observable. A team incentive scheme, where each agent is paid a bonus for aggregate output above a threshold, is optimal in case (a). The team’s efficiency may increase considerably with size if outputs are negatively correlated. Under (b) a tournament scheme with a threshold is optimal, where the threshold, for correlated outputs, depends on an agent’s relative performance. The two cases reveal that it may be optimal to organize production as a team where only aggregate output is observable.

Keywords: relational contracts; teams; tournaments (search for similar items in EconPapers)
JEL-codes: D89 J29 L23 M52 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Teams and Tournaments in Relational Contracts (2013)
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