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Performance Incentives with Award Constraints

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Author Info
Courty, Pascal
Marschke, Gerald

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Abstract

This Paper studies the provision of incentives in a large US training organization, which is divided into about 50 independent pools of training agencies. The number and the size of the agencies within each pool vary greatly. Each pool distributes performance incentive awards to the training agencies it supervises, subject to two constraints: the awards cannot be negative and the sum of the awards cannot exceed an award budget. We characterize the optimal award function and derive simple predictions about how award prizes should depend on the number of agencies, on their sizes, and on their performances. Our results indicate that the constraints on the award distribution bind and reduce the overall efficiency of the incentive system.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2720.

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Date of creation: Mar 2001
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Handle: RePEc:cpr:ceprdp:2720

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Related research
Keywords: Fixed Award Budget; Limited Liability; Performance Incentive;

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Find related papers by JEL classification:
H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  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. [Downloadable!] (restricted)
  2. Edward P. Lazear & Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Edward P. Lazear, 1996. "Performance Pay and Productivity," NBER Working Papers 5672, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kosmas Marinakis & Theofanis Tsoulouhas, 2006. "Tournaments and Liquidity Constraints for the Agents," Working Paper Series 019, North Carolina State University, Department of Economics, revised Apr 2008. [Downloadable!]
  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. [Downloadable!]
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