Aligning Ambition and Incentives

Alexander Koch and Eloic Peyrache ()
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Eloic Peyrache: HEC Paris

No 1527, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In many economic situations several principals contract with the same agents sequentially. Asymmetric learning about agents' abilities provides the first principal with an informational advantage and has profound implications for the design of incentive contracts. We show that the principal always strategically distorts information revelation to future principals about the ability of her agents. The second main result is that she can limit her search for optimal incentive schemes to the class of relative performance contracts that cannot be replicated by contracts based on individual performance only. This provides a new rationale for the optimality of such compensation schemes.

Keywords: reputation; asymmetric learning; relative performance contracts (search for similar items in EconPapers)
JEL-codes: D82 J33 L14 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2005-03
New Economics Papers: this item is included in nep-bec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - revised and extended version published in: Journal of Law, Economics and Organization, 2011, 27 (3): 655-688.

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Related works:
Journal Article: Aligning Ambition and Incentives (2011)
Working Paper: Aligning Ambition and Incentives (2011)
Working Paper: Aligning Ambition and Incentives (2008)
Working Paper: Aligning Ambition and Incentives (2005)
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