A Mixed Contract with Alternative Performance Measures in a Multitask Agency


Correspondence to: Antai College of Economics and Management, Shanghai Jiao Tong University, 535 Fahua Zhen Road, Shanghai 200052 China. E-mail: chaohong@sjtu.edu.cn


We compare the impact of two different mixed contracts on agent efforts when production depends on agent efforts at their own tasks as well as at helping others. The first contract combines compensation based on team output with that of a tournament where the bonus award is based on a ranking of individual output. The second contract also combines team output compensation with that of tournament except that the bonus award is based upon a relative ranking of an index constructed of alternative performance measures. We show that the latter contract can lead to higher levels of welfares than the former one. We also show that if the weights are properly constructed, the alternative contract can prompt agents into choosing first-best levels of effort. Copyright © 2013 John Wiley & Sons, Ltd.