What question did this study set out to answer?

To examine how combining subjective performance metrics in implicit contracts with objective metrics in explicit contracts impacts contract feasibility and overall efficiency.

November 1, 1994The Quarterly Journal of Economics

Subjective Performance Measures in Optimal Incentive Contracts

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Authors

GBGeorge P. BakerHarvard University Press RGRobert GibbonsCenter for Economic and Policy Research KMKevin J. MurphyNational Aeronautics and Space Administration

Discussion

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Implication

Theoretical model demonstrates the interplay between subjective and objective metrics in incentive contracts, highlighting when explicit terms crowd out or complement relational agreements.

Key Points

To examine how combining subjective performance metrics in implicit contracts with objective metrics in explicit contracts impacts contract feasibility and overall efficiency.
Formulated a microeconomic contract-theoretic model integrating formal explicit contracts with informal relational implicit contracts.
Analyzed equilibrium conditions for contracting regimes when measures act as substitutes versus complements, including the effect of subjective weights on objective measures.
Sufficiently effective explicit contracts can render all implicit contracts infeasible, even when the implicit contract alone could achieve the first-best outcome.
Objective and subjective performance measures act as complements under specific conditions, generating positive profit together when neither contract type succeeds alone.

Cite This Study

Baker et al. (1994) studied this question.

synapsesocial.com/papers/69d832c752654bb436d18600 https://doi.org/10.2307/2118358

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Implication

Theoretical model demonstrates the interplay between subjective and objective metrics in incentive contracts, highlighting when explicit terms crowd out or complement relational agreements.

Subjective Performance Measures in Optimal Incentive Contracts

Discussion

Member takes

Implication

Key Points

Cite This Study

Subjective Performance Measures in Optimal Incentive Contracts

Discussion

Member takes

Implication

Key Points

Cite This Study

Also Consider

Also Consider