() and Trond E. Olsen
Ola Kvaløy: UiS Business School, University of Stavanger, Postal: University of Stavanger, UiS Business School, 4036 Stavanger, Norway
Trond E. Olsen: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
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.
47 pages, December 16, 2016
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