English, Article, Journal or magazine article edition: Implicit vs. Explicit Incentives: Theory and a Case Study Dominique Demougin; Oliver Fabel; Christian Thomann

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Bookmark: http://trove.nla.gov.au/version/147685
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Implicit vs. Explicit Incentives: Theory and a Case Study
Author
  • Dominique Demougin
  • Oliver Fabel
  • Christian Thomann
Physical Description
  • preprint
Notes
  • We derive the optimal contract between a principal and a liquidity-constrained agent in a stochastically repeated environment. The contract comprises a court-enforceable explicit bonus rule and an implicit fixed salary promise that must be self-enforcing. Since the agent’s rent increases with bonus pay, the principal implements the maximum credible salary promise. Thus, the bonus increases while the salary promise and the agent’s effort decrease with a higher probability of premature contract termination. We subject this mechanism to econometric testing using personnel data of an insurance company. The empirical results strongly support our theoretical predictions.
  • implicit contract, explicit bonus pay, premature contract termination, compensation and productivity estimates
  • RePEc:ces:ceswps:_2645
Language
  • English
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