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

Author(s)

Christian Schmid, Yigal Gerchak

Abstract

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

Organisation(s)

External organisation(s)

Wirtschaftsuniversität Wien (WU), Tel Aviv University

Journal

Managerial and Decision Economics

Volume

40

Pages

353-362

No. of pages

10

ISSN

0143-6570

DOI

https://doi.org/10.1002/mde.3006

Publication date

06-2019

Peer reviewed

Yes

Austrian Fields of Science 2012

502006 Controlling, 502026 Human resource management

ASJC Scopus subject areas

Business and International Management, Strategy and Management, Management Science and Operations Research, Management of Technology and Innovation

Portal url

https://ucris.univie.ac.at/portal/en/publications/how-should-a-principal-reward-and-support-agents-when-firm-performance-is-characterized-by-success-or-failure(456f67c2-fdd2-442f-85a1-874fea782635).html