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Department of Business and Management Science, Norwegian School of Economics (NHH) Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)

No 2016/23:
Teams in Relational Contracts

Ola Kvaløy () and Trond E. Olsen ()

Abstract: We analyze relational contracting between a principal and a team of agents where only aggregate output is observable. We deduce optimal team incentive contracts under di€erent set of assumptions, and show that the principal can use team size and team composition as instruments in order to improve incentives. In particular, the principal can strengthen the agents' incentives by composing teams that utilize stochastic dependencies between the agents' outputs. We also show that more agents in the team may under certain conditions increase each team member's effort incentives, in particular if outputs are negatively correlated.

Keywords: Relational contracts; team incentive scheme; (follow links to similar papers)

JEL-Codes: D00; D20; D21; D80; D86; (follow links to similar papers)

47 pages, December 16, 2016

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