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The Tenuous Tradeoff Between Risk and Incentives
TLDR
In this article, the authors argue that the existing literature fails to account for an important effect of uncertainty on incentives through the allocation of responsibility to employees, and they argue that parts of the existing empirical literature are better explained through this lens than with the standard model.Abstract:
Empirical work testing for a negative tradeoff between risk and incentives, a cornerstone of agency theory, has not had much success. Indeed, the data seem to suggest a positive relationship between measures of uncertainty and incentives, rather than the posited negative tradeoff. I argue that the existing literature fails to account for an important effect of uncertainty on incentives through the allocation of responsibility to employees. When workers operate in certain settings, the activities that they should engage in are well known, and firms are content to assign tasks to workers and monitor their inputs. By contrast, when the situation is more uncertain, firms know less about how workers should be spending their time. As a result, the delegate responsibility to workers but, to constraint heir discretion, base compensation on observed output. Hence, uncertainty and output-based pay are positively related. I argue that parts of the existing empirical literature are better explained through this lens than with the standard model.read more
Citations
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Journal ArticleDOI
Target Ratcheting in Common and Unique Performance Measures
TL;DR: This work analyzes proprietary data on the performance evaluation of strategic unit managers in a Korean conglomerate to report intertemporal serial correlations of target achievement in both types of measures and partial (full) target difficulty revision in common and unique measures.
Journal ArticleDOI
Relative Wealth Concerns and Entrepreneurship
Manoj Atolia,Kislaya Prasad +1 more
TL;DR: In this article, the authors develop a model of occupational choice and entrepreneurship in which market frictions limit the possibilities for diversifying entrepreneurial risk and a concern for relative standing arises in this model even though individuals care only about the consumption of standard commodities.
Effectiveness of bonus and penalty incentive contracts in supply chain exchanges: Does national culture matter?
TL;DR: In this paper, the authors investigate the impact of national culture on the effectiveness of incentive contracts in supply chain exchanges and find that suppliers associated with collectivist cultures exert more effort and shirk less in incentive contracts.
Complementarity of Incentive Pay and Decentralized Decision Making: Evidence from Minnesota's Q-Comp Program for Teachers
TL;DR: In this paper, the authors use the experience of Q-Comp to evaluate the complementarity of output-based P4P and decentralized decision-making in the context of teacher evaluation.
Dissertation
Essays on the principal-expert problem
Zermeño Vallés,Luis G +1 more
TL;DR: In this paper, the problem of motivating an expert to help a principal take a decision is studied, where the only source of friction is that the expert must be induced to acquire non-verifiable information relevant for the principal's decision.
References
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Journal ArticleDOI
Multitask Principal–Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design
Bengt Holmstrom,Paul Milgrom +1 more
TL;DR: In this article, a principal-agent model that can explain why employment is sometimes superior to independent contracting even when there are no productive advantages to specific physical or human capital and no financial market imperfections to limit the agent's borrowings is presented.
Journal ArticleDOI
The Provision of Incentives in Firms
TL;DR: In this article, a review of existing work on the provision of incentives for workers is presented, and the authors evaluate this literature in the light of a growing empirical literature on compensation from two perspectives: first, an underlying assumption of this literature is that individuals respond to contracts that reward performance.
Journal ArticleDOI
Formal and Real Authority in Organizations
Philippe Aghion,Jean Tirole +1 more
TL;DR: In this article, the authors developed a theory of the allocation of formal authority and real authority within organizations, and illustrated how a formally integrated structure can accommodate various degrees of "real" integration.
Book ChapterDOI
An analysis of the principal-agent problem
TL;DR: In this article, the authors show that the optimal way of implementing an action by an agent can be found by solving a convex programming problem, and they use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem.
Journal ArticleDOI
The Use of Equity Grants to Manage Optimal Equity Incentive Levels
John E. Core,Wayne R. Guay +1 more
TL;DR: In this article, the authors predict that firms use annual grants of options and restricted stock to CEOs to manage the optimal level of equity incentives, and use the residuals from this model to measure deviations between CEOs’ holdings of equity incentive and optimal levels.
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