Over-Determinate and Incomplete Contract: Incentive Contract Based on Rabin Motivation Fairness Model

2013 ◽  
Author(s):  
Xiang Wang ◽  
Guodong Wu
Keyword(s):  
Incentive Contract ◽  
Incomplete Contract

Sticks and Carrots: The Effect of Contract Frame on Effort in Incomplete Contracts

2012 ◽  
Vol 87 (6) ◽  
pp. 1913-1938 ◽  
Author(s):  
Margaret H. Christ ◽  
Karen L. Sedatole ◽  
Kristy L. Towry
Keyword(s):  
Theoretical Model ◽  
Incomplete Contracts ◽  
Incentive Contracts ◽  
Incentive Contract ◽  
Incomplete Contract ◽  
Contract Framing

ABSTRACT In this study, we examine the effect of incentive contract framing on agent effort in an incomplete contract setting. Prior research suggests that when governed by complete incentive contracts, agents exert greater effort under penalty contracts relative to bonus contracts. However, in an incomplete contract setting, in which the incentive contract does not govern all tasks for which the agent is responsible, the agent's trust in the principal is relevant. In this setting, we predict that bonus contracts create a more trusting environment, and this effect spills over to tasks not governed by the incentive contract, such that bonus contracts elicit greater effort on these tasks as compared to penalty contracts. We develop and experimentally validate a theoretical model of the effects of contract frame on trust and effort in this incomplete contract setting. The main intuition behind the model is that the framing of an incentive contract affects the degree to which the contract terms are interpreted by the agent as a signal of mistrust. More specifically, penalty contracts engender greater distrust than do bonus contracts and, therefore, when contracts are incomplete, penalty contracts lead to lower effort on tasks not governed by the contract than do bonus contracts.

The Effects of Contract Framing on Misconduct and Entitlement

2018 ◽  
Vol 94 (3) ◽  
pp. 329-344 ◽  
Author(s):  
Jennifer E. Nichol
Keyword(s):  
Data Availability ◽  
Incentive Contract ◽  
Contract Framing ◽  
Sense Of Entitlement

ABSTRACT This study examines the effects of incentive contract framing on misreporting and entitlement. I conduct a 2 × 2 between-subjects experiment, manipulating incentive contract framing (Bonus/Penalty) and the awareness of the opportunity to misreport (Before Effort/After Effort). I predict and find that (1) penalty contracts cause a higher rate and degree of misreporting, and (2) this greater misreporting occurs due to a greater sense of entitlement to the incentive funds. Collectively, this study's theory and results indicate that while penalty contracts can sometimes increase effort relative to bonus contracts, they also encourage greater dishonesty in reporting when that effort is not successful. Data Availability: Contact the author.

scholarly journals Contracting on Time

2005 ◽  
Vol 95 (5) ◽  
pp. 1369-1385 ◽  
Author(s):  
Sergei Guriev ◽  
Dmitriy Kvasov
Keyword(s):  
Detailed Analysis ◽  
Continuous Time ◽  
Contract Theory ◽  
Bilateral Trade ◽  
Incomplete Contract ◽  
Optimal Contracts ◽  
Contract Duration ◽  
Unilateral Termination ◽  
Advance Notice ◽  
The Relationship

The paper shows how time considerations, especially those concerning contract duration, affect incomplete contract theory. Time is not only a dimension along which the relationship unfolds, but also a continuous verifiable variable that can be included in contracts. We consider a bilateral trade setting where contracting, investment, trade, and renegotiation take place in continuous time. We show that efficient investment can be induced either through a sequence of constantly renegotiated fixed-term contracts; or through a renegotiation-proof “evergreen” contract—a perpetual contract that allows unilateral termination with advance notice. We provide a detailed analysis of properties of optimal contracts.

Are Incentive Contract Settlements Nonevents?*

2018 ◽  
Vol 20 (4) ◽  
pp. 983-992
Author(s):  
Marie‐Hélène Gagnon ◽  
Aurélien Philippot
Keyword(s):  
Incentive Contract
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