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Contractual and organizational structure with reciprocal agents

Florian Englmaier () and Stephen Leider ()

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: We solve for the optimal contract when agents are reciprocal, demonstrating that generous compensation can substitute for performance-based pay. Our results suggest several factors that make firms more likely to use reciprocal incentives. Reciprocity is most powerful when output is a poor signal of effort and when the agent is highly reciprocal and/or productive. Similarly, reciprocal incentives are attractive when firm managers have strong incentive pay and discretion over employee compensation. While reciprocal incentives can be optimal even when identical firms compete, a reciprocity contract is most likely when one firm has a match-specific productivity advantage with the agent. (JEL D23, D86, J33, M12, M52).

Date: 2012
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Published in American Economic Journal: Microeconomics 2 4(2012): pp. 146-183

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Journal Article: Contractual and Organizational Structure with Reciprocal Agents (2012) Downloads
Working Paper: Contractual and Organizational Structure with Reciprocal Agents (2008) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenar:22010

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