A Mixed Contract with Alternative Performance Measures in a Multitask Agency
Article first published online: 20 MAR 2013
Copyright © 2013 John Wiley & Sons, Ltd.
Managerial and Decision Economics
Volume 34, Issue 6, pages 417–427, September 2013
How to Cite
Chao, H. and Siqueira, K. (2013), A Mixed Contract with Alternative Performance Measures in a Multitask Agency. Manage. Decis. Econ., 34: 417–427. doi: 10.1002/mde.2601
- Issue published online: 4 JUL 2013
- Article first published online: 20 MAR 2013
- Manuscript Accepted: 3 FEB 2013
- Manuscript Received: 16 OCT 2012
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.