Relational Contracts with and Between Agents

Journal of Accounting and Economics, 61: 369-390.

Columbia Business School Research Paper No. 17-15

Posted: 23 Jan 2017

See all articles by Tim Baldenius

Tim Baldenius

Columbia Buiness School

Jonathan C. Glover

Columbia Business School

Hao Xue

Duke University - Fuqua School of Business

Date Written: February 3, 2016

Abstract

We study a dynamic multi-agent model with a verifiable team performance measure and non-verifiable individual measures. The optimal contract can be interpreted as an explicit contract that specifies a minimum bonus pool as a function of the verifiable measure and an implicit contract that gives the principal discretion to increase the size of the pool and to allocate it among the agents. To mitigate the threat of collusion, the optimal contract often converts any exogenous productive interdependence into strategic payoff independence for the agents. Under productive complements, an unconditional bonus pool (pay without performance) can be less costly than one conditioned on the verifiable team measure.

Keywords: Bonus pools, Relational contracts, Non-verifiable performance measures, Dynamic contracting, Relative performance evaluation

JEL Classification: C70, D82, D86, M41

Suggested Citation

Baldenius, Tim and Glover, Jonathan C. and Xue, Hao, Relational Contracts with and Between Agents (February 3, 2016). Journal of Accounting and Economics, 61: 369-390., Columbia Business School Research Paper No. 17-15, Available at SSRN: https://ssrn.com/abstract=2900649

Tim Baldenius

Columbia Buiness School ( email )

3022 Broadway
New York, NY 10027
United States

Jonathan C. Glover (Contact Author)

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States
212-854-1911 (Phone)

Hao Xue

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

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