Providing Incentives with Private Contracts
Research output: Conference Papers (RGC: 31A, 31B, 32, 33) › 32_Refereed conference paper (without host publication) › peer-review
Author(s)
Related Research Unit(s)
Detail(s)
Original language | English |
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Publication status | Published - Jul 2022 |
Conference
Title | 2022 China International Conference in Finance (CICF) |
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Location | Virtual |
Place | China |
Period | 6 - 8 July 2022 |
Link(s)
Document Link | Links
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Permanent Link | https://scholars.cityu.edu.hk/en/publications/publication(a3b9b1b1-324b-4e9c-a7a5-219aea263c28).html |
Abstract
Agents working together to produce a joint output care about each other’s incentives. Because
real world contracts are typically private information, observed only by their direct signatories,
agents are vulnerable to the principal opportunistically reducing the power of other agents’
incentives. When agents are sufficiently skilled, the principal can mitigate this commitment
problem by making the most skilled one “team-leader,” with authority to write other agents’
contracts. This endogenous hierarchy, never optimal with public contracts, raises effort, output,
and compensation, but distorts effort allocation due to rent extraction. Our model applies to
bank syndicates, venture capital, organizational design, and outsourcing.
Citation Format(s)
Providing Incentives with Private Contracts. / BUFFA, Andrea M.; LIU, Qing; WHITE, Lucy.
2022. Paper presented at 2022 China International Conference in Finance (CICF), China.
2022. Paper presented at 2022 China International Conference in Finance (CICF), China.
Research output: Conference Papers (RGC: 31A, 31B, 32, 33) › 32_Refereed conference paper (without host publication) › peer-review