PROFIT SHARING AND INCENTIVES
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Date
2022
Authors
Ozdenoren, Emre
Rubanov, Oleg
Journal Title
Journal ISSN
Volume Title
Publisher
International Journal of Industrial Organization
Abstract
We model a firm as a team production process subject to moral hazard and derive the optimal profit sharing scheme between productive workers and outside investors together with incentive contracts based on noisy performance signals. More productive agents with noisier performance signals are more likely to receive shares which can explain why man- agers are motivated by shares, and law or consulting firms form partnerships. A firm that grows by opening branches is held almost entirely by outside investors when its out- put noise grows faster than the number of branches. Otherwise, insiders hold substantial amount of a large firm’s shares.
Description
Keywords
Type of access: Open Access, Team production, Moral hazard, Profit sharing, Partnerships, Incentives
Citation
Ozdenoren, E., & Rubanov, O. (2022). Profit Sharing and Incentives. International Journal of Industrial Organization, 83, 102857. https://doi.org/10.1016/j.ijindorg.2022.102857