reduce the effort costs of a worker, and analyze the optimal combination of motivational effort and monetary incentives. We … distinguish two cases. First, the firm owner chooses the intensity of motivation and bears the motivational costs. Second, another … agent of the firm chooses the motivational actions and incurs the associated costs. In the latter case, the firm must not …

each other. The contract may contain two types of incentives for the agent to work hard: a bonus and a threat of dismissal …. We find that good social relationships undermine the credibility of a threat of dismissal but strengthen the credibility …