How should a principal reward and support agents when firm performance is characterized by success or failure?

Christian Schmid, Yigal Gerchak

Publication: Scientific journalJournal articlepeer-review

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Abstract

Principal-agent models with multiple agents typically assume that the principal wishes to <br/>maximize the sum of the agents' achievements (net of the rewards paid to them). But in many <br/>settings, like R&D, all that the principal "Needs" is that at least one agent will be "successful." We <br/>identify settings where the principal actually wants agents to refrain from exerting high effort <br/>in order to save expected compensation. We show that the number of agents can decrease in <br/>the project's value for the principal. We also consider sequential efforts and investigate settings <br/>where the principal can provide support to agents.
Original languageEnglish
JournalManagerial and Decision Economics
DOIs
Publication statusPublished - 2019

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