The Optimality of Team Contracts

The Optimality of Team Contracts

This paper analyzes optimal contracts in a linear hidden-action model with normally distributed returns possessing two moments that are governed jointly by two agents who have negative exponential utilities. They can observe and verify each others’ effort levels and draft enforceable side-contracts...

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Bibliographic Details
Main Authors: Mehmet Barlo, Ayça Özdoğan
Format: Article
Language:English
Published: MDPI AG 2013-11-01
Series:Games
Subjects:
principal-agent problems
linear contracts
collusion
team
decentralization
Online Access:http://www.mdpi.com/2073-4336/4/4/670
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spelling doaj-d349631590d74978b0c7221a184df03d2020-11-24T21:06:56ZengMDPI AGGames2073-43362013-11-014467068910.3390/g4040670g4040670The Optimality of Team ContractsMehmet Barlo0Ayça Özdoğan1FASS, Sabancı University, Tuzla, Istanbul 34956, TurkeyDepartment of Economics, TOBB University of Economics and Technology, Sögütözü Cad. No. 43, Sögütözü, Ankara 06560, TurkeyThis paper analyzes optimal contracts in a linear hidden-action model with normally distributed returns possessing two moments that are governed jointly by two agents who have negative exponential utilities. They can observe and verify each others’ effort levels and draft enforceable side-contracts on effort levels and realized returns. Standard constraints, resulting in incentive contracts, fail to ensure implementability, and we examine centralized collusion-proof contracts and decentralized team contracts, as well. We prove that the principal may restrict attention to team contracts whenever returns from the project satisfy a mild monotonicity condition.http://www.mdpi.com/2073-4336/4/4/670principal-agent problemslinear contractscollusionteamdecentralization
collection DOAJ
language English
format Article
sources DOAJ
author Mehmet Barlo
Ayça Özdoğan
spellingShingle Mehmet Barlo
Ayça Özdoğan
The Optimality of Team Contracts
Games
principal-agent problems
linear contracts
collusion
team
decentralization
author_facet Mehmet Barlo
Ayça Özdoğan
author_sort Mehmet Barlo
title The Optimality of Team Contracts
title_short The Optimality of Team Contracts
title_full The Optimality of Team Contracts
title_fullStr The Optimality of Team Contracts
title_full_unstemmed The Optimality of Team Contracts
title_sort optimality of team contracts
publisher MDPI AG
series Games
issn 2073-4336
publishDate 2013-11-01
description This paper analyzes optimal contracts in a linear hidden-action model with normally distributed returns possessing two moments that are governed jointly by two agents who have negative exponential utilities. They can observe and verify each others’ effort levels and draft enforceable side-contracts on effort levels and realized returns. Standard constraints, resulting in incentive contracts, fail to ensure implementability, and we examine centralized collusion-proof contracts and decentralized team contracts, as well. We prove that the principal may restrict attention to team contracts whenever returns from the project satisfy a mild monotonicity condition.
topic principal-agent problems
linear contracts
collusion
team
decentralization
url http://www.mdpi.com/2073-4336/4/4/670
work_keys_str_mv AT mehmetbarlo theoptimalityofteamcontracts
AT aycaozdogan theoptimalityofteamcontracts
AT mehmetbarlo optimalityofteamcontracts
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