"Yes Men," Integrity, and the Optimal Design of Incentive Contracts

Christian Ewerhart and Patrick Schmitz

MPRA Paper from University Library of Munich, Germany

Abstract: In a pioneering approach towards the explanation of the phenomenon of "yes man" behavior in organizations, Prendergast (1993) argued that incentive contracts in employment relationships generally make a worker distort his privately acquired information. This would imply that there is a trade-off between inducing a worker to exert costly effort and inducing him to tell the truth. In contrast, we show that with optimally designed contracts, which we term integrity contracts, the worker will both exert effort and report his information truthfully, and that hence the first best can be achieved.

Keywords: Yes men; Incentive contracts; Integrity (search for similar items in EconPapers)
JEL-codes: D20 J30 (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (12)

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Journal Article: "Yes men", integrity, and the optimal design of incentive contracts (2000)
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