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How to Restore Higher-Powered Incentives in Multitask Agencies

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  • Sinclair-Desgagne, Bernard

Abstract

In multiple-task agency setups it is commonly accepted that wage incentives must be weaker when the agent's performance on some of the activities is difficult to measure. This article shows that stronger incentives can be restored through a scheme of selective audits in which the appraisal of less tangible activities is contingent on observing high performance levels in the more visible tasks. This scheme would make the efforts expended on the various tasks complementary rather than substitutes in the agent's utility function. It is optimal under plausible assumptions concerning the monitoring technology (separability of the multivariate likelihood function) and the agent's risk behavior (absolute prudence larger than three times absolute risk aversion). Copyright 1999 by Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Journal of Law, Economics and Organization.

Volume (Year): 15 (1999)
Issue (Month): 2 (July)
Pages: 418-33

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Handle: RePEc:oup:jleorg:v:15:y:1999:i:2:p:418-33

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Cited by:
  1. Laurent Franckx & Alessio D'Amato, 2003. "Environmental policy as a multi-task principal-agent problem," Energy, Transport and Environment Working Papers Series ete0312, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  2. Wallace E. Huffman & Just, Richard E., 2010. "Setting Incentives for Scientists Who Engage in Research and Other Activities: An Application of Principal-Agent Theory," Staff General Research Papers 31647, Iowa State University, Department of Economics.
  3. Christoph H. Loch & D. Charles Galunic & Susan Schneider, 2006. "Balancing cooperation and competition in human groups: the role of emotional algorithms and evolution," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(2-3), pages 217-233.
  4. Laurent Franckx & F.P. de Vries, 2004. "Environmental Liability and Organizational Structure," Energy, Transport and Environment Working Papers Series ete0401, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  5. Bernard Sinclair-Desgagné, 2000. "Environmental Risk Management and the Business Firm," CIRANO Working Papers 2000s-23, CIRANO.
  6. Marie-Cécile Fagart & Bernard Sinclair-Desgagné, 2002. "Auditing Policies and Information Systems in Principal-agent Analysis," Cahiers de recherche 02-02, HEC Montréal, Institut d'économie appliquée.
  7. Marcel Boyer & M. Martin Boyer & René Garcia, 2005. "The Value of Real and Financial Risk Management," CIRANO Working Papers 2005s-38, CIRANO.
  8. Hueth, Brent & Marcoul, Philippe, 2007. "The Cooperative Firm as Monitored Credit," Staff Paper Series 508, University of Wisconsin, Agricultural and Applied Economics.
  9. Josepa Miquel-Florensa, 2007. "Optimal Incentives in Dynamic Multiple Project Contracts," Working Papers 2007_2, York University, Department of Economics.
  10. Bernard Sinclair-Desgagné, 2004. "Corporate Strategies For Managing Environmental Risk (The International Library Of Environmental Economics And Policy – Volume xx)," CIRANO Working Papers 2004s-43, CIRANO.
  11. Bernard Sinclair-Desgagné & Carel Vachon, 1999. "Dealing with Major Technological Risks," CIRANO Working Papers 99s-29, CIRANO.
  12. repec:ebl:ecbull:v:10:y:2004:i:10:p:1-10 is not listed on IDEAS
  13. Josepa Miquel-Florensa, 2011. "Incentives in Development Lending: Technical Cooperation," OVE Working Papers 0111, Inter-American Development Bank, Office of Evaluation and Oversight (OVE).
  14. Jean-Pierre Ponssard & Olivier Saulpic, 2002. "Modelling performance in a Balanced Scorecard : findings from a case study," Working Papers hal-00243003, HAL.

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