Using a formal principal-agent model, I investigate the relation between monetary gift-exchange and incentive pay, while allowing for worker heterogeneity. I assume that some agents care more for their principal when they are convinced that the principal cares for them. Principals can signal...

Using a formal principal-agent model, I investigate the relation between monetary gift-exchange and incentive pay, while allowing for worker heterogeneity. I assume that some agents care more for their principal when they are convinced that the principal cares for them. Principals can signal...

We address the question how much authority a principal should delegate to a manager with conflicting interests and uncertain ability in a context in which the manager has both compensation-based and reputational incentives. The optimal level of authority balances the value of the manager's...

I analyze the use of alternative performance measures using an agency model that incorporates both formal and informal agreements. I show that under the proper combination of verifiable and unverifiable performance measures, the two types of contract complement each other regardless of the...

We study the screening problem of a firm that needs to hire a worker to produce output and that observes neither the productive ability nor the intrinsic motivation of the job applicant. We completely characterize the set of optimal contracts according to whether motivation or ability is the...

Problems involving hidden action are typically solved with incentive contracts. However, they can be solved more efficiently if the agent reliably tells the truth about hidden action. In this paper, we parameterize the agent with an exogenous lying cost. If the cost is high enough, the agent can...

This paper examines the optimal compensation scheme, job design, and severance policy for a team using a model of repeated moral hazard. In the optimal contract, the agent may be paid to quit after a poor performance. We show that a generous severance policy facilitates the adoption of team...

Productive tasks are often designed so as to make one agent's output depend on the contributions of others, in which case the agents work as a group. This paper shows that, even if organizing agents in a group has no effect on productivity, task interdependence increases the principal's expected...