Empirically, compensation systems generate substantial effort despite weak monetary incentives. We consider reciprocal motivations as a source of incentives. We solve for the optimal contract in the basic principal-agent problem and show that reciprocal motivations and explicit performance-based...

NGO aid is still widely believed to be superior to official aid (ODA). However, the incentives of NGOs to excel and target aid to the poor and deserving are increasingly disputed. We contribute to the emerging literature on the allocation of NGO aid by performing panel Tobit estimations for...

The relationship between competition and performance-related pay has been analyzed in single-principal-single-agent models. While this approach yields good predictions for managerial pay schemes, the predictions fail to apply for employees at lower tiers of a firm’s hierarchy. In this paper, a...

Social interaction with colleagues is an important job attribute for many workers. To attract and retain workers, managers therefore need to think about how to create and preserve high-quality co-worker relationships. This paper develops a principal-multi-agent model where agents do not only...

We study the dynamics of the quantity and quality of teachers in the framework of dynamic general equilibrium OLG model. The quantity and quality are jointly set by a government agency wishing to maximize the quality of basic education per student while being bound by teachers’ collective...

This paper analyzes awards as a means of motivation prevalent in the scientific community, but so far neglected in the economic literature on incentives, and discusses their relationship to monetary compensation. Awards are better suited than performance pay to reward scientific tasks, which are...

Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher...

We derive the optimal contract between a principal and a liquidity-constrained agent in a stochastically repeated environment. The contract comprises a court-enforceable explicit bonus rule and an implicit fixed salary promise that must be self-enforcing. Since the agent's rent increases with...