Speaker: Prof. Bingyong Zheng (Shanghai University of Finance and Economics)
Relational contracts with multitask jobs
3:00-4:15 pm, 2018/10/16 (Tuesday)
Room A619, Teaching A
Prof. Bingyong Zheng (Shanghai University of Finance and Economics)
This paper analyzes a multitask principal-agent model in which the performance measures of certain tasks are subjective and relational contracts are used to provide incentives. We find that rewarding the agent based on a subjective measure that aggregates performance on multiple tasks can help ease the tension between the agent’s motivation for a bonus and the principal’s temptation to renege on bonus payments. Consequently, when certain dimensions of performance cannot be determined objectively, it may be optimal to avoid using explicit contracts for incentive provision even if other dimensions of performance can be objectively measured.