Early Versus Late Effort in Dynamic Agencies with Unverifiable Information

Artikel

In this paper we analyze a dynamic agency problem where contracting parties do not know the agent's future productivity at the beginning of the relationship. We consider a two-period model where both the agent and the principal observe the agent's second-period productivity at the end of the first period. This observation is assumed to be non-verifiable information. We compare long-term contracts with short-term contracts with respect to their suitability to motivate effort in both periods. On the one hand, short-term contracts allow for a better fine-tuning of second-period incentives as they can be aligned with the agent's second-period productivity. On the other hand, in short-term contracts first-period effort incentives might be distorted as contracts have to be sequentially optimal. Hence, the difference between long-term and short-term contracts is characterized by a trade-off between inducing effort in the first and in the second period. We analyze the determinants of this trade-off and demonstrate its implications for performance measurement and information system design.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: BuR - Business Research ; ISSN: 1866-8658 ; Volume: 1 ; Year: 2008 ; Issue: 2 ; Pages: 165-186 ; Göttingen: VHB - Verband der Hochschullehrer für Betriebswirtschaft, German Academic Association of Business Research

Classification and Topics

• Classification: Management
• Subject: accounting ; performance measurement ; Prinzipal-Agent-Theorie ; Vertragsrecht ; Asymmetrische Information ; Performance-Messung ; Operations Research

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Schöndube, Jens Robert
• Event: Veröffentlichung
• (who): VHB - Verband der Hochschullehrer für Betriebswirtschaft, German Academic Association of Business Research
• (where): Göttingen
• (when): 2008

Further information

• DOI: doi:10.1007/BF03343532
• Handle: http://hdl.handle.net/10419/103669
• URN: urn:nbn:de:0009-20-16513
• Last update: 10.03.2025, 11:44 AM CET