Abstract
What is the most efficient way of designing incentives in an organization? Over the past five decades, agency theory has provided various answers to this crucial question. This line of research suggests that, depending on the organizational context, the optimal approach to providing incentives may involve either relying on collective compensations or, conversely, employing relative performance evaluations. In the first scenario, cooperation among agents is the key aspect of the organization. In the second, competition prevails. This paper provides a comprehensive overview of this extensive literature, with the aim of understanding the conditions under which one or the other type of incentive schemes is more desirable for the principal of the organization. To this end, we use a flexible and versatile model capable of addressing a wide range of scenarios characterized by different technologies, information constraints, and behavioral norms.
Keywords
Incentive contracts; moral hazard; teams; competition vs. cooperation; collusion; free riding; tournaments; peer effects; organizational design;
JEL codes
- D20: General
- D86: Economics of Contract: Theory
- J33: Compensation Packages • Payment Methods
- L23: Organization of Production
- M12: Personnel Management • Executives; Executive Compensation
- M50: General
Replaces
Pierre Fleckinger, David Martimort, and Nicolas Roux, “Should They Compete or Should They Cooperate? The View of Agency Theory”, TSE Working Paper, n. 23-1421, March 2023, revised January 2024.
Reference
David Martimort, Pierre Fleckinger, and Nicolas Roux, “Should They Compete or Should They Cooperate? The View of Agency Theory”, Journal of Economic Literature, vol. 62, n. 4, December 2024, p. 1589–1646.
See also
Published in
Journal of Economic Literature, vol. 62, n. 4, December 2024, p. 1589–1646