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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
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Why has CEO Pay Increased So Much
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Information privacy research: an interdisciplinary review
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Women in the Boardroom and Their Impact on Governance and Performance
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Characteristics, Contracts and Actions: Evidence from Venture Capitalist Analyses
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Managerial Attitudes and Corporate Actions
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References
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An Empirical Analysis of Sales-Force Compensation Plans
TL;DR: In this article, the authors summarize theoretical predictions from the economics, marketing, finance, and accounting literatures on the structure of optimal sales-force compensation plans and construct empirical models to quantify the effect of various salesforce factors, firm and product factors, and market factors on compensation.
Posted Content
Incentive Contracting and the Franchise Decision
TL;DR: In this paper, the authors examine theoretical predictions and econometric evidence concerning franchise contracting and sales-force compensation and suggest a number of factors that ought to influence the contracts that are written between principles and agents.
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Complexity in Long-term Contracts: An Analysis of Natural Gas Contractual Provisions
TL;DR: In this paper, the authors analyze and empirically test a number of hypotheses on the role of the contractual provisions in the natural gas industry and compare the results with the empirical literature.
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The design of contracts: Evidence from Japanese subcontracting
Seiichi Kawasaki,Seiichi Kawasaki,Seiichi Kawasaki,John McMillan,John McMillan,John McMillan +5 more
TL;DR: In this article, the authors investigated the design of contracts in a principal-agent framework, using data from Japanese subcontracting, and found that the contracts in use in Japanese sub-contracting can be interpreted as resolving the principalagent trade-off between risk sharing and moral hazard.
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The role of risk in franchising
TL;DR: The authors show that the evidence for risk shedding in franchising is weak given the problems associated with measuring risk in the early stages of the process and show how a model emphasizing incentive issues and informational problems can give rise to the patterns found in the data.
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