Are you a good employee or simply a good guy? Influence costs and contract design

Brice Corgnet and Ismael Rodriguez-Lara

Post-Print from HAL

Abstract: We develop a principal–agent model with a moral hazard problem in which the principal has access to a hard signal (the level of output) and a soft behavioral signal (the supervision signal) about the agent's level of effort. In our model, the agent can initiate influence activities and manipulate the behavioral signal. These activities are costly for the principal as they detract the agent from the productive task. We show that the agent's ability to manipulate the behavioral signal leads to low-powered incentives and increases the cost of implementing the efficient equilibrium as a result. Interestingly, the fact that manipulation activities entail productivity losses may lead to the design of influence-free contracts that deter manipulation and lead to high-powered incentives. This result implies that the optimal contract (and whether manipulation is tolerated in equilibrium or not) depends on the magnitude of the productivity-based influence costs. We show that it may be optimal for the principal not to supervise the agent, even if the cost of supervision is arbitrarily low.

Keywords: Principal–agent model with supervision; Moral hazard problem; Contract design; Influence activities; Manipulation; Productivity-based influence costs; Power of incentives (search for similar items in EconPapers)
Date: 2013-08-01
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Published in Journal of Economic Behavior & Organization, 2013, 92, 259-272 p. ⟨10.1016/j.jebo.2013.06.003⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Are you a good employee or simply a good guy? Influence costs and contract design (2013)
Working Paper: Are you a Good Employee or Simply a Good Guy? Infl?uence Costs and Contract Design (2012)
Working Paper: Are you a good employee or simply a good guy? Influence Costs and Contract Design (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02311958

DOI: 10.1016/j.jebo.2013.06.003

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().