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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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A Sectoral Comparison of Wage Levels and Wage Inequality in Human Services Industries
TL;DR: In this article, the authors explore differences among for-profit, nonprofit, and local government organizations in wage levels and inequality, and they hypothesize that compared to forprofit organizations, local government organisations are less likely to provide financial incentives, pay lower or higher compensation to their employees, depending on a host of factors, and have less wage inequality.
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Delegation and incentives
Helmut Bester,Daniel Krähmer +1 more
TL;DR: The authors analyzes the relation between authority and incentives and finds that the consideration of effort incentives makes the principal less likely to delegate the authority over projects to the agent, and that if the agent is protected by limited liability, delegation is never optimal.
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IT Outsourcing Contracts and Performance Measurement
David Fitoussi,Vijay Gurbaxani +1 more
TL;DR: It is found that the use of strong direct incentives for a given measurable objective is negatively correlated with the presence of less measurable objectives in the contract and it is shown that outsourcing contracts that emphasize goals with high measurement costs employ more performance metrics than initiatives whose objectives have a lower measurement cost profile.
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Who pays for performance
TL;DR: In this article, the authors present a theoretical framework that motivates n empirical study of performance-related pay and find that performance pay is more prevalent in firms where workers of the main occupation have a high degree of autonomy in how to organize their work.
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Recent Advances in the Empirics of Organizational Economics
TL;DR: A survey of recent contributions in empirical organizational economics focusing on management practices and decentralization is presented in this article, where the authors identify the complementary relationship between information and communication technology, decentralization, and management, and identify the productivity effects of organizational practices.
References
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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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