Providing Incentives with Private Contracts

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (no ISBN/ISSN)peer-review

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Detail(s)

Original languageEnglish
Number of pages65
Publication statusPublished - Jan 2023

Conference

Title2023 American Finance Association Annual Meeting (AFA 2023)
LocationSheraton New Orleans
PlaceUnited States
CityNew Orleans
Period6 - 8 January 2023

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.

Bibliographic Note

Since this conference is yet to commence, the information for this record is subject to revision. Information for this record is supplemented by the author(s) concerned.

Citation Format(s)

Providing Incentives with Private Contracts. / BUFFA, Andrea M.; LIU, Qing; WHITE, Lucy.

2023. Paper presented at 2023 American Finance Association Annual Meeting (AFA 2023), New Orleans, Louisiana, United States.

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (no ISBN/ISSN)peer-review