“Expropriation and Incentives within Organizations” 

Gulseren Mutlu, City University of Hong Kong 

Gurupdesh Pandher, University of Windsor and University of British Columbia

This paper studies the strategic interplay between innovation, incentives, expropriation threat and disputes arising from expropriation from an intra-organization perspective. We present a multi-stage principal-agent model with hidden actions and hidden information in which two employees can choose how much (innovative) effort to exert, whether to expropriate and to dispute if innovation is expropriated. We analyze three different types of rewards that prevent expropriation: revocable, irrevocable and team rewards. Irrevocable rewards involve a promise of ‘rent’ to the potential thief to deter expropriation. We show that revocable rewards always dominate irrevocable rewards. While the revocable rewards may dominate team rewards when the innovation value is low, team rewards always dominate if the innovation value is high enough.