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The Impact of Incentive Pay on Corporate Crime

Author

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  • Daniel Herold

    (Justus-Liebig-University Giessen)

Abstract

This paper presents a moral hazard model analyzing the agent's incentive to commit corporate crime. The principal can only observe profits which the agent can increase by committing crime or exerting effort. It is shown how different incentive contracts, i.e., thresholdlinear, capped bonus and linear contracts, can be adjusted in order to promote agent's law abiding behavior. Any adjustment implies a loss in internal efficiency which decreases in individual sanctions imposed on the agent.

Suggested Citation

  • Daniel Herold, 2017. "The Impact of Incentive Pay on Corporate Crime," MAGKS Papers on Economics 201752, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:201752
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    More about this item

    Keywords

    moral hazard; incentive pay; corporate crime; cartels;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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