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Accountability in an agency model: Project selection, effort incentives, and contract design

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  • Christian Lukas
  • Max‐Frederik Neubert
  • Jens Robert Schöndube

Abstract

We analyze an agency model of project choice and implementation where the agent is held accountable for his performance. We show that implementation of the ex ante efficient project may be impossible, irrespective of how the principal sets fixed wage and bonus rate. If it is possible, the principal may be forced to increase the bonus rate above the optimal project‐specific rate. The higher profit share compensates the agent for pressure he faces when he has to justify/explain his performance.

Suggested Citation

  • Christian Lukas & Max‐Frederik Neubert & Jens Robert Schöndube, 2019. "Accountability in an agency model: Project selection, effort incentives, and contract design," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 40(2), pages 150-158, March.
    • Handle: RePEc:wly:mgtdec:v:40:y:2019:i:2:p:150-158
    DOI: 10.1002/mde.2989
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    Cited by:

    1. Christian Lukas, 2023. "On interim performance evaluations and interdependent period outcomes," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 34(1), pages 67-108, March.
    2. Mina Ličen & Sergeja Slapničar, 2022. "Can process accountability mitigate myopic biases? An experimental analysis," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 33(1), pages 1-26, March.

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