Cooperation versus Competition between Agents in Relational Contracts

How should firms provide incentives to a group of workers when performance measures are unverifiable? We provided some answers to this question in our paper »Team Incentives in Relational Employment Contracts« in 2006. Here we reflect upon the contribution of that paper and provide a further analysis of this research question.We propose a more applied theoretical framework and explore stochastic properties of performance variables, including correlations that make one agent's performance informative about another agent's effort. In this framework cooperative incentives tend to be preferable when performances are negatively correlated, while competitive incentives tend to prevail under positive correlation.