This article addresses the question of whether lump-sum bonuses motivate salespeople to work harder to attain incremental orders or whether they induce salespeople to play timing games (behaviors that increase incentive payments without providing incremental benefits to the firm) with their...

To address agents' moral hazard over effort, incentive contracts impose risk on the agents. As performance measures become noisier, the conventional agency analysis predicts that principals will reduce the incentive weights assigned to such measures. However, prior empirical results (Prendergast...

This paper seeks to characterize incentive compensation in a static principal-agent moral hazard setting in which both the principal and the agent are prudent (or downside risk averse). We show that optimal incentive pay should then be `approximately concave' in performance, the approximation...

In this paper, we show that whenever the agent's outside option is nonzero, the optimal contract in the continuous-time principal-agent model of Sannikov (2008) is reflective at the lower bound. This means the agent is never terminated or retired after poor performance. Instead, the agent is...

We analyze the optimal contract between a risk-averse manager and the initial shareholders in a two-period model where the manager's investment effort, carried out in period 1, and her current effort, carried out in period 2, both impact the second-period profit, so that it may be difficult to...

This paper provides the first evidence that value-added education accountability schemes induce dynamic distortions. Extending earlier dynamic moral hazard models, I propose a new test for ratchet effects, showing that classroom inputs are distorted less when schools face a shorter horizon over...

Drawing on the proposer-responder game examined by Andreoni, Harbaugh, and Vesterlund (2003), I experimentally test four variations of a principal-agent relationship with fixed pay and real effort. Depending on the treatment, the principal can voluntarily, but at her own expense, (1) only reward...

As a new work style remote work has become an increasingly important factor for firms and their employees. Employees potentially benefit from a higher flexibility when working remotely. Firms can make use of this non-financial benefit to increase their attractiveness on the job market and to...

We consider a model of moral hazard with limited liability of the agent and effort that is two-dimensional. One dimension of the agent's effort is observable and the other is not. The principal can thusmake the contract conditional not only on outcome but also on observable effort. The...