Incentive Provision when Contracting is Costly

Bibliographic Data

ID9722612
AuthorsOla Kvaløy (0000-0003-2004-5807, University of Stavanger Norway), Trond E Olsen (Norwegian School of Economics)
Year2016
Volume83
Issue332
Pages741-767
Publication date2016-10-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueEconomica (JOURNAL)
Journal identifiersISSN: 0013-0427 • E-ISSN: 1468-0335
PublisherWiley (PUBLISHER • GB)
DOI10.1111/ecca.12179
OpenAlexW2142872572
LanguageEN
References cited41

We analyse optimal incentive contracts in a model where the probability of court enforcement is determined by the costs spent on contracting. The analysis shows that there is no monotonic relationship between contracting costs and incentive intensity, and that an increase in contracting costs may lead to higher‐powered incentives. Moreover, we formulate hypotheses about the relationship between legal systems and incentive provision. Specifically, the model predicts higher‐powered incentives in common law than in civil law systems. We also find that better performance measures may induce lower investments in contracting, and potentially lead to lower‐powered incentives

Business · Economics · Enforcement · Incentive · Microeconomics · Public economics · Insurance and Financial Risk Management · Law · Law, Economics, and Judicial Systems · Legal principles and applications

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