The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Contracting in Firms

  • Canice Prendergast
Reference work entry


This article provides an overview of recent advances in theoretical and empirical work on incentive contracting in firms. The specific focus is on a variety of reasons why the prediction of the early literature on contracting –suggesting a strong relationship between performance and pay – has not been borne out.


Agency theory Contracting in firms Externalities Free rider problem Incentive contracts Input monitoring Measurement error Multitasking Performance-related pay Principal and agent Private information Risk 

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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Canice Prendergast
    • 1
  1. 1.