Formal and Relational Incentives in a Multitask Model

26 Pages Posted: 10 Mar 2006

See all articles by Kohei Daido

Kohei Daido

Kwansei Gakuin University - School of Economics


This paper studies the optimal contracts in a multitask model when a principal-agent relationship is long-term. If some outcomes are unverifiable, then the contracts have to satisfy the self-enforcing condition. I characterize the optimal contract in terms of the discount rate, the cost substitutes, and the weight of the unverifiable outcomes relative to the principal's payoff. Then, as the discount rate increases, the incentive to verifiable outcome (formal incentive) changes discontinuously and non-monotonically while the incentive to the unverifiable outcome (relational incentive) changes discontinuously but monotonically.

Keywords: enforcement, multitask, relational contract, self-enforcing condition, verifiability

JEL Classification: J33, K42, L21

Suggested Citation

Daido, Kohei, Formal and Relational Incentives in a Multitask Model. International Review of Law and Economics, Forthcoming, Available at SSRN:

Kohei Daido (Contact Author)

Kwansei Gakuin University - School of Economics ( email )

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