Incentive provision when contracting is costly

Ola Kvaløy and Trond Olsen

No 2012/16, UiS Working Papers in Economics and Finance from University of Stavanger

Abstract: We analyze optimal incentive contracts in a model where the probability of court enforcement is determined by the costs spent on contracting. The analysis shows that contract costs matter for incentive provision, both in static spot contracts and repeated game relational contracts. We show that there is not a monotonic relationship between contracting costs and incentive intensity, and that an increase in contracting costs may lead to higher-powered incentives. Moreover, we formulate hypotheses about the relationship between legal systems and incentive provision. Specifically, the model predicts higher-powered incentives in common law than in civil law systems.

Keywords: . (search for similar items in EconPapers)
JEL-codes: A10 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2012-09-19
New Economics Papers: this item is included in nep-bec, nep-cta and nep-mic
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Incentive Provision when Contracting is Costly (2016)
Working Paper: Incentive provision when contracting is costly (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:stavef:2012_016

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