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Author Info
Glenn MacDonald
Leslie M. Marx

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Abstract

We analyze a multiple-activity, principal-agent model in which the activities are naturally substitutable for the agent and complementary for the principal. A basic result is that the optimal compensation must cause the agent to view the activities as complements. This complementarity is achieved by employing a compensation scheme that is typically nonmonotone and makes success on multiple dimensions the sole source of large rewards. A number of empirical implications follow, along with explanations for some existing empirical findings. We also discuss applications to compensation in specific occupations.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 109 (2001)
Issue (Month): 4 (August)
Pages: 864-899
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Handle: RePEc:ucp:jpolec:v:109:y:2001:i:4:p:864-899

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  3. Burgess, Simon & Propper, Carol & Ratto, Marisa & Tominey, Emma, 2003. "Incentives in the Public Sector: Some Preliminary Evidence from a UK Government Agency," CEPR Discussion Papers 4010, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," The Centre for Market and Public Organisation 03/071, Department of Economics, University of Bristol, UK. [Downloadable!]
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