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Original Articles

On the optimality of linear contracts to induce goal-congruent investment behaviour

Pages 207-211 | Published online: 20 Aug 2006
 

Abstract

It has become increasingly popular in practice to implement incentive systems that create goal-congruent investment behaviour between central and divisional management. In the following paper, it is shown that only linear contracts enable goal-congruent investment decisions if central management does not have information about the investment project. This might cast a new light on why linear compensation schemes are often used in practice.

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