We study, theoretically and empirically, the effects of incentives on the self-selection and coordination of motivated agents to produce a social good. Agents join teams where they allocate effort to either generate individual monetary rewards (selfish effort) or contribute to the production of...

This paper explores how a relational contract establishes a norm of reciprocity and how such a norm shapes the provision of informal incentives. Developing a model of a long-term employment relationship, I show that generous upfront wages that activate the norm of reciprocity are more important...

This paper analyzes a dynamic relational contract for employees with reciprocal preferences. I develop a tractable model to investigate how "direct" performance-pay (promising a bonus in exchange for effort) and generous upfront wages (which activate the norm of reciprocity) interact over the...

Economists and management scholars have argued that the scope of incentives to increase cooperation in organizations is limited as their use signals the prevalence of free-riding among employees. This paper tests this hypothesis experimentally, using a sample of managers and employees from a...

In many markets supply contracts include a series of small, regular payments made by consumers and a single, large bonus that consumers receive at some point during the contractual period. But, if for instance its production costs exceed its value to consumers, such a bonus creates...

Before embarking on a project, a principal must often rely on an agent to learn about its profitability. We model this learning as a two-armed bandit problem and highlight the interaction between learning (experimentation) and production. We derive the optimal contract for both experimentation...

This paper studies mechanism design with limited commitment where agents have persistent correlated types over the infinite horizon. The mechanism designer now faces the informed-principal problem in addition to usual issues with i.i.d. types. With an infinite horizon and nondurable good, there...

We argue that risk sharing motivates the bank-wide structure of bonus pay. In the presence of financial frictions that make external financing costly, the optimal contract between shareholders and employees involves some degree of risk sharing whereby bonus pay partially absorbs earnings shocks....

This paper studies how pay transparency affects organizations that reward employees based on their efforts (i.e., using “subjective performance evaluation”). First, we show that transparency triggers social comparisons that require the organization to pay its employees an “envy premium”....

Reward systems based on balanced scorecards typically connect pay to an index, i.e. a weighted sum of multiple performance measures. We show that such an index contract may indeed be optimal if performance measures are non-verifiable so that the contracting parties must rely on self-enforcement....