Should They Compete or Should They Cooperate? The View of Agency Theory

Pierre Fleckinger (), David Martimort () and Nicolas Roux
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Pierre Fleckinger: Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris Sciences et Lettres, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CERNA i3 - Centre d'économie industrielle i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris Sciences et Lettres - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique
David Martimort: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Nicolas Roux: TWS Partners

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Abstract: What is the most efficient way of designing incentives in an organization? Over the past five decades, agency theory has provided various answers to this crucial question. This line of research suggests that, depending on the organizational context, the optimal approach to providing incentives may involve either relying on collective compensations or, conversely, employing relative performance evaluations. In the first scenario, cooperation among agents is the key aspect of the organization. In the second, competition prevails. This paper provides a comprehensive overview of this extensive literature, with the aim of understanding the conditions under which one or the other type of incentive schemes is more desirable for the principal of the organization. To this end, we use a flexible and versatile model capable of addressing a wide range of scenarios characterized by different technologies, information constraints, and behavioral norms.

Keywords: Incentive contracts; Moral hazard; Teams; Competition vs. cooperation; Collusion; Free riding; Tournaments; Peer effects; Organizational design. (search for similar items in EconPapers)
Date: 2024-12
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Published in Journal of Economic Literature, 2024, 62 (4), pp.1589-1646. ⟨10.1257/jel.20241678⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-04807332

DOI: 10.1257/jel.20241678

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