Discussion Papers, Department of Finance and Management Science, Norwegian School of Economics (NHH)
No 2007/27:
Cooperation in knowledge-intensive firms
Ola Kvaløy ()
and Trond E. Olsen ()
Abstract: The extent to which a knowledge-intensive firm should
induce cooperation between its employees is analyzed in a model of
relational contracting between a firm (principal) and its employees (two
agents). The agents can cooperate by helping each other, i.e. provide
effort that increases the performance of their peer without affecting their
own performance. We extend the existing literature on agent-cooperation by
analyzing the implications of incomplete contracts and agent hold-up. A
main result is that if the agents' hold-up power is sufficiently high, then
it is suboptimal for the principal to implement cooperation, even if
helping effort is productive per se. This implies, contrary to many
property rights models, that social surplus may suffer if the investing
parties (here the agents) are residual claimants. The model also shows that
long-term relationships facilitate cooperation even if the agents cannot
monitor or punish each others effort choices.
Keywords: Relational contracts; multiagent moral hazard; endogenous hold-up; (follow links to similar papers)
JEL-Codes: D23; J33; L14; (follow links to similar papers)
32 pages, November 30, 2007
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