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Teams and Tournaments in Relational Contracts

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  • Ola Kvaløy
  • Trond Olsen

Abstract

We analyze relational contracts for a set of agents when either (a) only aggregate output or (b) individual outputs are observable. A team incentive scheme, where each agent is paid a bonus for aggregate output above a threshold, is optimal in case (a). The team’s efficiency may increase considerably with size if outputs are negatively correlated. Under (b) a tournament scheme with a threshold is optimal, where the threshold, for correlated outputs, depends on an agent’s relative performance. The two cases reveal that it may be optimal to organize production as a team where only aggregate output is observable.

Suggested Citation

  • Ola Kvaløy & Trond Olsen, 2014. "Teams and Tournaments in Relational Contracts," CESifo Working Paper Series 4783, CESifo.
    • Handle: RePEc:ces:ceswps:_4783
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    Cited by:

    1. Hwang, Sunjoo, 2016. "Relational contracts and the first-order approach," Journal of Mathematical Economics, Elsevier, vol. 63(C), pages 126-130.
    2. Ola Kvaløy & Trond E. Olsen, 2019. "Relational Contracts, Multiple Agents, and Correlated Outputs," Management Science, INFORMS, vol. 65(11), pages 5360-5370, November.

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    More about this item

    Keywords

    relational contracts; teams; tournaments;
    All these keywords.

    JEL classification:

    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
    • J29 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Other
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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