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Ex Ante Incentives and Ex Post Flexibility

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  • Marcel Boyer

    ()

  • Jacques Robert

    ()

Abstract

Our objective in this paper is to illustrate and better understand the unavoidable arbitrage between incentives and flexibility in contexts of asymmetric information and to characterize the general features of an appropriate response to this challenge. We show that procedures and institutions in organizations which reduce the capacity to implement change may be necessary to generate the optimal level of inertia. We show that more flexibility in adapting to changing conditions or new information, typically known or observed by either the agent or the principal but not both, may come at the expense of efforts exerted up front by the agent to make the organization more successful. There is a trade-off in this context between ex ante efforts and ex post flexibility of adaptation. Nous développons dans cet article un modèle principal-agent permettant de mieux cerner l'arbitrage inéluctable entre incitations et flexibilité en situation d'information asymétrique. Nous caractérisons la meilleure réponse de l'organisation face à ce défi en termes d'un niveau optimal d'inertie. Une plus grande flexibilité d'adaptation aux changements dans l'environnement ou l'information, que ces changements soient observés par le principal ou l'agent, peut réduire les efforts non-observables consentis par l'agent pour assurer le succès de l'organisation.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 96s-14.

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Date of creation: 01 Apr 1996
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Handle: RePEc:cir:cirwor:96s-14

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Related research

Keywords: Incentives; Flexibility; Adaptation; Asymmetric Information; Incitations; Flexibilité; Adaptation; Information asymétrique;

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References

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  1. BOYER, Marcel & MOREAUX, Michel, 1995. "Capacity Commitment Versus Flexibility: The Technological Choice Nexus in a Strategic Context," Cahiers de recherche 9556, Universite de Montreal, Departement de sciences economiques.
  2. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
  3. Boyer, M. & Moreaux, A., 1989. "Uncertainty, Capacity and Flexibility: the Monopoly Case," Cahiers de recherche 8911, Universite de Montreal, Departement de sciences economiques.
  4. Jones, Robert A & Ostroy, Joseph M, 1984. "Flexibility and Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 13-32, January.
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Cited by:
  1. Boyer, Marcel, 1996. "L’économie des organisations," L'Actualité Economique, Société Canadienne de Science Economique, vol. 72(3), pages 247-274, septembre.
  2. Juan D. Carrillo & Denis Gromb, 2005. "Culture in Organizations: Inertia and Uniformity," Levine's Bibliography 172782000000000053, UCLA Department of Economics.
  3. Marcel Boyer, 1997. "L'économie des organisations : Mythes et réalités," CIRANO Working Papers 97s-02, CIRANO.

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