The role of risk sharing and risk taking under gainsharing

Despite considerable practitioner interest in gainsharing compensation prog rams, understanding how gainsharing works and, thus, how to improve it in p ractice is hampered by a lack of a theoretical foundation upon which to bui ld empirically testable models. We use a risk-sharing framework to develop or model of gainsharing that we hope will provide this missing theoretical foundation. In our model we develop propositions that highlight the differe nces between group-wide and individual incentive arrangements and that esta blish boundary conditions for a theory of gainsharing.