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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Volume (Year): 109 (2001) Issue (Month): 4 (August) Pages: 864-899 Download reference. The following formats are available: HTML
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Benoit, Jean-Pierre & Dubra, Juan, 2006.
"The problem of prevention,"
MPRA Paper
2462, University Library of Munich, Germany, revised 30 Mar 2007.
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Other versions:
Benoit, Jean-Pierre & Dubra, Juan, 2006.
"The Problem of Prevention,"
Working Papers
06-01, C.V. Starr Center for Applied Economics, New York University.
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