The expectation measure, labor contracts, and the incentive to work hard☆

Geest, Gerrit De; Siegers, Jacques J.; Vandenberghe, Ann-Sophie

doi:10.1016/s0144-8188(00)00034-x

Cited by 10 publications

(4 citation statements)

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“…36 A common justification is that this minimizes the hold-up risk (when both have something to lose, a hold-up is less likely then when one party does not have anything to lose). Our analysis suggests an additional justification: if the legal system is unable to sanction contract breach, then equal relation-specific investments implicitly share the 35 De Geest, Siegers, and Vandenberghe (2001). reliance losses in case of contract breach, and this filters out the breaches (or terminations) that were easiest to prevent.…”

Section: Labor Contractsmentioning

confidence: 99%

The Filtering Effect of Sharing Rules

Dari‐Mattiacci

Geest

2004

SSRN Journal

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Sharing rules have a filtering effect on violations: they prevent the most harmful violations and let the least harmful ones occur. We show under what conditions the filtering effect improves social welfare and argue that this may explain why, in most areas of the law, sharing rules are, in general, preferred to rules that entirely burden one party. Our analysis applies to comparative negligence, communal liability, the allocation of police investigation efforts, contract remedies for non-verifiable breaches such as those that may occur in marriage and employment contracts, and to the distribution of shares in partnerships.

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Section: Labor Contractsmentioning

confidence: 99%

The Filtering Effect of Sharing Rules

Dari‐Mattiacci

Geest

2004

SSRN Journal

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“…These restrictions and the widespread use of positive sanction systems (like 'bonuses', or 'efficiency wages') in employment contracts stands in contrast with most commercial and consumer contracts (such as sales contracts or construction contracts) in which promisors are generally incentivized by negative sanctions, such as expectation damages (De Geest, Siegers and Vandenberghe, 2001). …”

Section: Restrictions On Negative Sanctions In Employment Contractsmentioning

confidence: 99%

Carrots, Sticks, and the Multiplication Effect

Dari‐Mattiacci

Geest

2007

SSRN Journal

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Although a punishment can be applied only once, the threat to punish (also referred to as stick) can be reiterated several times, because when parties obey, the punishment is not applied and thus the threat can be repeated. The same is not possible with promises to reward (also known as carrots), since they need to be carried on every time a party complies, and hence at each round a new reward is needed. We show that the multipliability of sticks has pervasive consequences in economics and law and provides a unified explanation for seemingly unrelated phenomena such as the dynamics of riots and revolutions, the divideand-conquer strategy, comparative negligence, the anticommons problem, the use of property rules in markets, the most-favored nation clause, legal restrictions on penalties in employment contracts, and legal aid. CARROTS, STICKS, AND THE MULTIPLICATION EFFECT ABSTRACTAlthough a punishment can be applied only once, the threat to punish (also referred to as stick) can be reiterated several times, because when parties obey, the punishment is not applied and thus the threat can be repeated. The same is not possible with promises to reward (also known as carrots), since they need to be carried on every time a party complies, and hence at each round a new reward is needed. We show that the multipliability of sticks has pervasive consequences in economics and law and provides a unified explanation for seemingly unrelated phenomena such as the dynamics of riots and revolutions, the divide-and-conquer strategy, comparative negligence, the anticommons problem, the use of property rules in markets, the most-favorednation clause, legal restrictions on penalties in employment contracts, and legal aid.

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“…The issue of whether boards of directors and managers owe a fiduciary duty to ESO grantees has been decided differently in various jurisdictions. In the USA, there is no such fiduciary duty (Starkman v. Warner Communications, 671 FSupp 297 (SDNY, 1987)); Glinert v. Wickes, 1990 WL 34703 (199) 1983)) (Nygaard and Myrtveit, 2000;De Geest et al, 2001;Hopt and Wymeersch, 2003). An ESO represents an "expectations interest" in the company which is neither debt nor equity but is a contract right which creates a fiduciary duty, because: managers' and board of directors' actions will affect the values of such "expectations interest", and ESO grantees are controlled by the board of directors.…”

Section: Employee Stock Optionsmentioning

confidence: 99%

“…ESOs provide more incentives than most other forms of compensation, because the right is awarded in the present for future performance. Motivation via ESOs arises from the immediacy of the award, and implicit contingency, and grantees have the opportunity to actively influence the outcome (De Geest et al, 2001;Cragg and Dyck, 2000;Feltham and Wu, 2001;Kraisberg et al, 2001). Psychologically, restricted stock is "money-in-the-bank" which does not provide optimal motivation.…”

Section: Maj 199mentioning

confidence: 99%

Legal, economic and psychological issues of accounting for employee stock options

Nwogugu¹

2004

Managerial Auditing Journal

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This paper analyzes economic, legal, behavioral and public policy issues pertaining to the accounting for employee stock options. The paper explains why employee stock options (ESOs) are superior to other forms of incentive compensation, why ESOs in their present form are inefficient and why particular accounting, legal and tax treatments will provide the optimal results for the economy, the government, management/employees and shareholders. The issues discussed in this article are relevant in ESO accounting, regulation of ESOs, incentive compensation, human resources analysis, tax policy, corporate governance, fraud, valuation of companies, derivatives regulation, behavioral analysis of law/rules, portfolio management and management strategy.

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The expectation measure, labor contracts, and the incentive to work hard☆

Cited by 10 publications

References 0 publications

The Filtering Effect of Sharing Rules

The Filtering Effect of Sharing Rules

Carrots, Sticks, and the Multiplication Effect

Legal, economic and psychological issues of accounting for employee stock options

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