Working Paper: CEPR ID: DP17885
Authors: Patrick W. Schmitz
Abstract: A principal wants an agent to exert unobservable research effort. Ruling out negative payments implies that (i) the principal cannot punish bad outcomes and (ii) she cannot extract rents. We disentangle these two effects by allowing the principal to place verifiable teaching duties on the agent. In the first scenario, the principal can punish the agent with completely unproductive teaching duties conditional on bad research outcomes. In the second scenario, the agent is forced to teach regardless of research outcomes, though his teaching disutility is larger than the principal's benefit. Each of the two scenarios may involve higher research efforts.
Keywords: moral hazard; limited liability; hidden action; incentive contracts; job design
JEL Codes: D86; I23; J41; M52; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Teaching Duties (A21) | Research Effort (I23) |
| Principal's Punishment (Teaching Duties) (A21) | Research Effort (I23) |
| Principal's Ineffective Rent Extraction (D52) | Agent's Motivation (L85) |
| Teaching Duties as Rent Extraction (A19) | Research Effort (I23) |
| Teaching Duties as Rent Extraction (A19) | Total Surplus (D69) |