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Sales Contracts and Production Uncertainty

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  • ROBERT DRAGO

Abstract

The paper examines production under common uncertainty where sales contracts specify penalties for under‐ or over‐production. We locate a trade‐off between high productivity and the incurrence of penalties, and identify work incentives appropriate for different cases.

Suggested Citation

  • Robert Drago, 1992. "Sales Contracts and Production Uncertainty," The Economic Record, The Economic Society of Australia, vol. 68(4), pages 343-350, December.
    • Handle: RePEc:bla:ecorec:v:68:y:1992:i:4:p:343-350
    DOI: 10.1111/j.1475-4932.1992.tb01784.x
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    References listed on IDEAS

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    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    3. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    4. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    5. Barry J. Nalebuff & Joseph E. Stiglitz, 1983. "Prices and Incentives: Towards a General Theory of Compensation and Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 21-43, Spring.
    6. Drago, Robert & Turnbull, Geoffrey K, 1991. "Market Incentives and Work Incentives: The Question of Flexible Production," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(1), pages 77-83, February.
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