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on Contract Theory and Applications |
| By: | Kvaløy, Ola (UiS Business School, University of Stavanger); Olsen, Trond E. (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | Reward systems based on balanced scorecards typically connect pay to an index, i.e. a weighted sum of multiple performance measures. However, there is no formal incentive model that actually describe this kind of index contracts as an optimal solution. In this paper, we show that an index contract may indeed be optimal if performance measures are non-verifiable so that the contracting parties must rely on self-enforcement. Under standard assumptions, the optimal self-enforcing (relational) contract between a principal and a Multitasking agent is an index contract where the agent gets a bonus if a weighted sum of performance outcomes on the various tasks (the index) exceeds a hurdle. For a parametric (multinormal) specification, the efficiency of the contract improves with higher precision of the index measure, since this strengthens incentives. Correlations between measurements may for this reason be beneficial. For a similar reason, the principal may also want to include verifiable performance measures in the relational index contract in order to improve incentives. |
| Keywords: | Relational contracts; balanced scorecards; multiple performance measures; index contracts; performance reward |
| JEL: | D00 D20 D21 D80 D86 |
| Date: | 2020–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2020_003&r=all |
| By: | Brassiolo, Pablo; Estrada, Ricardo; Fajardo, Gustavo; Vargas, Juan |
| Abstract: | We study whether the existence of opportunities to extract rents in a job affects the type of individuals who are attracted to it. We design a laboratory experiment in which individuals choose between two contracts, each offering a payment in return for performing a task, and we experimentally introduce the possibility of graft in one of the contracts. First, we find that the corruptible contract attracts less honest individuals and repels the more honest ones, thus changing the composition of the group that chooses that contract to the detriment of integrity. Second, we observe extensive graft when the opportunity is introduced. Using a double randomization strategy to disentangle pure incentives and selection effects, we find that selection is the fundamental driver of graft in our context. |
| Keywords: | Corrupción, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:dbl:dblwop:1567&r=all |
| By: | Johanna Rath (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria) |
| Abstract: | This study contrasts different effects of applying blockchain technology on a social norm of trust and individual behaviour. The advanced technological features of blockchain could either complete contractual information and prevent coordination failures by substituting the need for trust or allow for some degree of incompleteness in information and favour a reciprocal mechanism of trust to solve for inefficiencies arising out of it. Either way, incomplete information is a necessary condition for the emergence of social norms of trust and reciprocity; hence a change in the completion of contractual information influences the institutional setting that market mechanisms are embedded in. One evolutionary process drives both, the degree of information available and behavioural traits within the society. Technology is neutral, but the way it is applied has different consequences on the institutional setting and thus favours different individual behavioural traits. Blockchain technology might either substitute or complement the need for trust. |
| Keywords: | trust, incomplete contracts, social norms, coordination failure |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:ico:wpaper:107&r=all |
| By: | Michelle Avataneo; Bertan Turhan |
| Abstract: | We study two-sided matching markets in which agents match to institutions that may have multiple slots available to accept contracts. In many real-world institutions, there are restrictions for some slots (if not all) either on slot priorities or on the transferability of unfilled slots over others (or both). We construct a rich family of practical choice rules, slot-specific priorities with capacity transfers (SSPwCT), that utilize both independent slot priorities and transferability of vacant slots. We show that the cumulative offer mechanism (COM) is stable, strategy-proof and respects improvements with regards to SSPwCT choice rules. Transferring the capacity of one more unfilled slot, while all else is constant, leads to strategy-proof Pareto improvement of the COM. We also provide comparative static results for expansion of branch capacity and addition of new contracts. Our results have implications for resource allocation problems with diversity considerations. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2004.13265&r=all |