Contractual and organizational structure with reciprocal agents
Florian Englmaier () and
Stephen Leider ()
Munich Reprints in Economics from University of Munich, Department of Economics
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).
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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)
Working Paper: Contractual and Organizational Structure with Reciprocal Agents (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenar:22010
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