Widely used performance-based contracts put (positive or negative) externalities on co-workers. These externalities have been proven to shape an organization’s working climate, especially when workers exhibit social preferences. However, it is a priori unclear whether a more friendly or a more competitive working environment should be encouraged. In this paper we consider a theoretical model in which a self-interested principal has to motivate a team of agents. Agents are symmetric, potentially risk-averse and exhibit reciprocity concerns towards each other. The optimal contract is derived solving a psychological game with asymmetric information. We show that the optimal incentive design depends on the interplay between the agents’ attitudes towards risks and their preferences for reciprocity. In particular, the optimal contract implements (i) a relative performance compensation scheme which induces negative reciprocity if agents are relatively little risk averse and (ii) a joint performance compensation scheme which induces positive reciprocity if agents are sufficiently risk averse. This interplay is moderated by the precision of the individual performance indicators and by the relative weights attached to positive and negative reciprocity. Our findings can explain some puzzling empirical results.
“The Threat of Corruption and the Optimal Supervisory Task”, (2017) with Alessandro De Chiara (CEU). Journal of Economic Behavior & Organization, volume 133, pages 172-186.
In this paper we investigate the task the supervisor should be optimally charged with in an agency model in which the principal faces corruption concerns. We highlight a fundamental tradeoff between monitoring the agent’s effort choice and auditing it ex-post. Monitoring proves more effective in tackling corruption since the supervisor sends the report before the profit realization. By taking advantage of the supervisor’s uncertainty about the state of nature, the principal can design a compensation scheme which prevents all forms of corruption at a lower cost. Conversely auditing reduces the cost of supervision as the principal hires the supervisor only if the profit does not convey enough information about the compensation due to the agent. We show that the ultimate choice between monitoring and auditing depends on the supervisor’s ability to falsify information and the cost of performing an inspection.
Tighter regulation and more powerful supervisors are being enacted after the global financial crisis. Although this trend may have positive welfare effects, it may also impose large social costs due to the strong reliance on supervisory information. We argue that offering banks a flexible supervision contract, designed to be chosen by those banks that otherwise will attempt to capture the supervisor, is a mechanism to implement the most efficient regulation under asymmetric information. Policy implications follow directly: benevolent regulators should enact a flexible supervisory regime in addition to mandatory supervision.
“Personality Proximity and Support Differentiation in Hierarchical Organizations” (2015) UNDER REVISION
The literature on Personnel Psychology (PP) has long recognized the importance of the quality of the leader-subordinates relationship for a number of primary organizational outcomes. It has been shown that the way a subordinate perceives the quality of its relationship with the leader depends on (i) the proximity of their personalities and (ii) on a series of behaviors undertaken by the leader (support, attention, recognition, praise) in the early stages of the working relationship. It is also a fact that leaders discriminates subordinates providing different levels of support. The final impact of differentiation on organizational outcomes remain an open issue in (PP). In this paper, we develop a three-tier agency model in which the attention devoted by the leader (manager) to her subordinate (productive agent) impacts on the goodness of their relationship and in turn on the agent’s altruistic preferences. We find that: (i) when the manager’s attention is not contractible, a huge complementarity between material incentives and social exchanges emerges. The importance of such a complementarity decreases in the proximity of the employees’ personalities; (ii) when the personality proximity of the employees is private information, a decentralized organizational structure in which the manager subcontracts with the agents proves superior to a centralized structure; (iii) finally, when the leader coordinates a team of agents and exhibits different degrees of proximity, the principal induces differentiated exchanges of attention-effort to restore equality and organizational justice.
Work in Progress
“Corruption-Proof Contracts in Competitive Procurement”, with Alessandro De Chiara (CEU).
“Lonesome Riders or Team Players? Organizing Production with Reciprocal Agents”.