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Optimal Team Contracts

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  • David Andolfatto
  • Ed Nosal

Abstract

In this paper, the authors evaluate certain challenges put forth by Mukesh Eswaran and Ashok Kotwal (1984) and Eric Rasmusen (1987) concerning the legitimacy of Bengt Holmstrom's (1982) proposed solution for the problem of moral hazard in teams. They demonstrate that the argument put forth by Rasmusen hinges on some rather extreme conditions concerning the verifiability of individual actions relating to renegotiation attempts; relaxing these conditions renders efficient budget-balancing contracts infeasible, as argued by Holmstrom. Second, the authors demonstrate that the criticism put forth by Eswaran and Kotwal is invalid, at least if one insists that clandestine deals must satisfy the same incentive-compatibility conditions required of the principal-agent contract proposed by Holmstrom.

Suggested Citation

  • David Andolfatto & Ed Nosal, 1997. "Optimal Team Contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 30(2), pages 385-396, May.
    • Handle: RePEc:cje:issued:v:30:y:1997:i:2:p:385-96
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    Cited by:

    1. Claude Meidinger & Jean-Louis Rulliere & Marie-Claire Villeval, 2000. "Free-Riding and Fairness in Principal - Multi-agent Relationships: Experimental Evidence," Cahiers de la Maison des Sciences Economiques bla00048, Université Panthéon-Sorbonne (Paris 1).
    2. Madanmohan Ghosh & Carlo Perroni & John Whalley, 1999. "The Value of MFN Treatment to Developing Countries," University of Western Ontario, Departmental Research Report Series 9916, University of Western Ontario, Department of Economics.
    3. Dow, Gregory K., 2000. "On the Neutrality of Asset Ownership for Work Incentives," Journal of Comparative Economics, Elsevier, vol. 28(3), pages 581-605, September.
    4. Gustavo Ferro & Omar O. Chisari, 2010. "Tópicos de Economía de la Regulación de los Servicios Públicos," Working Papers hal-00473038, HAL.
    5. Spraggon, John, 2002. "Exogenous targeting instruments as a solution to group moral hazards," Journal of Public Economics, Elsevier, vol. 84(3), pages 427-456, June.
    6. Claude Meidinger & Jean-Louis Rullière & Marie-Claire Villeval, 2000. "Free-Riding and Fairness in Principal -Multi-Agent Relationships: Experimental Evidence," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-03718476, HAL.
    7. Dow, Gregory K. & Putterman, Louis, 2000. "Why capital suppliers (usually) hire workers: what we know and what we need to know," Journal of Economic Behavior & Organization, Elsevier, vol. 43(3), pages 319-336, November.
    8. Dow,Gregory K., 2019. "The Labor-Managed Firm," Cambridge Books, Cambridge University Press, number 9781107589650, November.
    9. Fosco, C. & Mengel, F., 2008. "Incentives and informal networks," Research Memorandum 022, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    10. María Verónica Alderete, 2015. "Redes de pymes: una visión desde las teorías de club y de equipo," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 17(32), pages 317-348, January-J.
    11. Huddart, Steven & Liang, Pierre Jinghong, 2005. "Profit sharing and monitoring in partnerships," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 153-187, December.

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