Chang-Koo Chi, NHH
Department seminar. Chang-Koo Chi is a Assistant Professor at the Department of Economics at Norwegian School of Economics (NHH). He will present a paper entitled "Relational Incentive Contracts and performance Measurement" co-authored by Trond E. Olsen.
Chang-Koo Chi. Photo: NHH
This paper analyzes relational contracts under moral hazard. We first show that if the available information (signal) about effort satisfies the monotone likelihood ratio transformation property, then irrespective of whether the first-order approach (FOA) is valid, the optimal bonus scheme takes a simple form. The scheme rewards the agent a fixed bonus if the likelihood ratio exceeds a threshold, but in contrast with the FOA contract characterized in Levin (2003), the threshold is not necessarily zero. We next derive a sufficient and necessary condition for non-verifiable information to improve efficiency of a contract. Our new informativeness criterion sheds light on the nature of an ideal performance measure in relational contracting.
Host: Tuomas Laiho