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Performance Incentives with Award Constraints

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  • Pascal Courty
  • Gerald Marschke

Abstract

This paper studies the provision of incentives in a large government organization that is divided into independent pools of agencies. Each pool distributes performance awards to the agencies it supervises, subject to two constraints: the awards cannot be negative and the sum of the awards cannot exceed a fixed budget. The theory shows that the constraints on the award distribution bind for pools that are heterogeneous enough, resulting in inefficiencies. The empirical analysis presents conflicting evidence in light of the theory. A possible explanation is that the award designers may have additional objectives in addition to effort maximization.

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Bibliographic Info

Article provided by University of Wisconsin Press in its journal Journal of Human Resources.

Volume (Year): 37 (2002)
Issue (Month): 4 ()
Pages: 812-845

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Handle: RePEc:uwp:jhriss:v:37:y:2002:i:4:p:812-845

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Web page: http://jhr.uwpress.org/

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  1. Demski, Joel S. & Sappington, David E. M. & Spiller, Pablo T., 1988. "Incentive schemes with multiple agents and bankruptcy constraints," Journal of Economic Theory, Elsevier, vol. 44(1), pages 156-167, February.
  2. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  3. Heckman, James J & Heinrich, Carolyn & Smith, Jeffrey, 1997. "Assessing the Performance of Performance Standards in Public Bureaucracies," American Economic Review, American Economic Association, vol. 87(2), pages 389-95, May.
  4. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
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Cited by:
  1. Peter Z. Schochet & John A. Burghardt, 2008. "Do Job Corps performance measures track program impacts?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 27(3), pages 556-576.
  2. Adele Atkinson & Simon Burgess & Bronwyn Croxson & Paul Gregg, 2004. "Evaluating the Impact of Performance-related Pay for Teachers in England," The Centre for Market and Public Organisation 04/113, Department of Economics, University of Bristol, UK.

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