THE EFFECT OF UNCERTAINTY AND INFORMATION ASYMMETRY ON THE STRUCTURE OF COMPENSATION CONTRACTS - A TEST OF COMPETING MODELS

This research note reports results of a laboratory experiment conducte d as st follow-up investigation of an earlier study by Umanath, Ray an d Campbell (1993). Here, we focus on a specific unexpected result of U manath et al. who found evidence contradicting the theoretical predict ion with respect to the impact of environmental uncertainty on the com position of compensation contracts. Umanath et al., in retrospect, off ered an explanation for their unexpected finding based on an alternati ve theory under the saute agency framework. Our results not only ratif y the alternative explanation offered by Umanath et al., but also iden tify information symmetry/asymmetry as the contingent factor capable o f reconciling the apparently contradicting predictions of the two agen cy-based theories used in this research.