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Setting Efficient Incentives for Agricultural Research: Lessons from Principal-Agent Theory

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  • Wallace E. Huffman
  • Richard E. Just

Abstract

A conceptual analysis of important issues in the organization and management of academic research is presented. Principal-agent theory is applied to derive optimal compensation schemes for scientists when they differ in ability, risk aversion, cost of effort, and reservation utility, and to show the optimal trade-off between institutional risk and scientists' abilities. Implications for an efficient organization of research are derived, including how scientists' incentives should be structured to elicit optimal research efforts and direction, whether research direction should be centralized or decentralized, and whether the organization of research should be through external competitive grantsor program and institutional funding. Copyright 2000, Oxford University Press.

Suggested Citation

  • Wallace E. Huffman & Richard E. Just, 2000. "Setting Efficient Incentives for Agricultural Research: Lessons from Principal-Agent Theory," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 828-841.
    • Handle: RePEc:oup:ajagec:v:82:y:2000:i:4:p:828-841
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    File URL: http://hdl.handle.net/10.1111/0002-9092.00084
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    1. Steven D. Levitt, 1995. "Optimal Incentive Schemes When Only the Agents' "Best" Output Matters to the Principal," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 744-760, Winter.
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