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Optimal Contracting with Endogenous Project Mission

28 Pages Posted: 19 Dec 2016  

Lea Cassar

University of Cologne

Multiple version iconThere are 2 versions of this paper

Date Written: November 16, 2016

Abstract

I analyze a model in which a principal offers a contract to an agent and can influence the agent’s marginal return of effort by the choice of the project mission. The principal’s and the agents’ mission preferences are misaligned, and the agents have unobservable intrinsic motivation levels. I show that the non-contractibility of effort (asymmetric information) brings the mission closer to the agent’s (principal’s) preferences. Furthermore, when effort is non-contractible, the optimal mechanism i) has a “double distortion” in the mission; ii) does not exclude low-types agents; and iii) can be implemented through a scoring auction. Several applications are discussed.

Keywords: optimal contracting, non-monetary incentives, mission preferences, intrinsic motivation

JEL Classification: H410, D230, D820, M520

Suggested Citation

Cassar, Lea, Optimal Contracting with Endogenous Project Mission (November 16, 2016). CESifo Working Paper Series No. 6181. Available at SSRN: https://ssrn.com/abstract=2887278

Lea Cassar (Contact Author)

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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