Open AccessPosted Content
The Tenuous Tradeoff Between Risk and Incentives
Reads0
Chats0
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
More filters
Journal ArticleDOI
Risk---incentives trade-off and outside options
TL;DR: It is shown that when an increase in the uncertainty amplifies the riskiness of principal's internal project more than the agent’s outside option, a positive risk–incentives relationship can be predicted when the internal project is sufficiently risky.
Journal ArticleDOI
Does Culture Pay? Evidence from Crowdsourced Employee Engagement Data
TL;DR: For example, the authors found that culture is strongly correlated with employee engagement and both firm productivity and occupational skills, and that a value-weighted portfolio of companies with high culture earns a monthly four-factor alpha that is 7.5% higher than their counterparts.
Posted Content
"Organizational Structure and Firms' Demand for HRM Practices"
Tor Eriksson,Jaime Ortega +1 more
TL;DR: In this paper, the authors examine empirically the determinants of firms' demand for HRM pay, work and training practices with a special focus on the role of differences in the organizational structure of firms.
Journal ArticleDOI
Testing for Distortions in Performance Measures: An Application to Residual Income Based Measures like Economic Value Added
Randolph Sloof,Mirjam van Praag +1 more
TL;DR: In this paper, the authors apply the empirical test developed by Courty and Marschke (Review of Economics and Statistics, 90, 428-441) to detect whether the widely used class of residual income-based performance measures, such as economic value added (EVA), is distorted, leading to unintended agent behavior.
Journal ArticleDOI
Estimating the Eects of Incentives When Workers Learn about Their Ability
TL;DR: In this article, the authors investigate how considerations about the quality mix shape pay policy and pro-tect within a structural model of eort choice, learning about match quality, and turnover.
References
More filters
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.
Related Papers (5)
Multitask Principal–Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design
Bengt Holmstrom,Paul Milgrom +1 more