Linear contracts as incentives: a puzzle

• Autores: Oscar Gutiérrez González
• Localización: Spanish economic review, ISSN 1435-5469, Vol. 9, Nº 2, 2007, págs. 153-158
• Idioma: inglés
• Texto completo no disponible (Saber más ...)
• Resumen

  • This paper reexamines the linear schedule of compensation as a tool for providing incentives to managers when contractible output is a function of costly effort and a random shock. Two puzzling situations compatible with linear schemes of compensation are presented. First, if the model parameters are such that the optimal participation on output is below 50%, the variable compensation turns out to have a negative effect on manager's utility. Second, if it is below 25%, linear incentives allow situations in which larger utilities are reached by means of smaller rewards.