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....

This paper analyzes relational contracts under moral hazard. We first show that if the available information (signal) about effort satisfies a generalized monotone likelihood ratio property, then irrespective of whether the first-order approach (FOA) is valid or not, the optimal bonus scheme...

This paper analyzes relational contracts under moral hazard. We first show that if the available information (signal) about effort satisfies a generalized monotone likelihood ratio property, then irrespective of whether the first-order approach (FOA) is valid or not, the optimal bonus scheme...