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Relative performance evaluation, agent hold-up and firm organization
2008
Journal of the Japanese and international economies (Print)
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We analyze a situation where common noise makes compensation based on relative performance evaluation (RPE) desirable, but where the agents' ability to hold-up values ex post obstruct the implementation of optimal RPE schemes. The principal can take actions to constrain the agents'hold-up power by limiting their outside options and by protecting property rights, but once these actions are costly, a trade-o¤ between incentive provision and agent control appears. The model contributes to the
doi:10.1016/j.jjie.2007.07.004
fatcat:kxctgbne65gilmb2zqcso37fae