Advanced Search
MyIDEAS: Login

Distorted Performance Measures and Dynamic Incentives

Contents:

Author Info

  • Kaarbøe, Oddvar M.

    ()
    (Programme for Health Economics (HEB), Department of Economics, University of Bergen)

  • Olsen, Trond E.

    ()
    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

Incentive contracts must typically be based on performance measures that do not exactly match agents' true contribution to principals' objectives. Such misalignment may impose difficulties for effective incentive design. We analyze to what extent implicit dynamic incentives such as career concerns and ratchet effects alleviate or aggravate these problems. Our analysis demonstrates that the interplay between distorted performance measures and implicit incentives implies that career and ratchet effects have real effects, that career and monetary incentives may be complements, and that stronger ratchet effects or more distortion may increase optimal monetary incentives.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nhh.no/for/dp/2004/2104.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Stein Fossen)
Download Restriction: no

Bibliographic Info

Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2004/21.

as in new window
Length: 20 pages
Date of creation: 29 Dec 2004
Date of revision:
Handle: RePEc:hhs:nhhfms:2004_021

Contact details of provider:
Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
Email:
Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
More information through EDIRC

Related research

Keywords: Incentive contracts; Performance measures;

Other versions of this item:

Find related papers by JEL classification:

References

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.:
as in new window
  1. Robert Gibbons, 1986. "Piece-Rate Incentive Schemes," Working papers 424, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
  3. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  4. Meyer, M.A. & Olsen, T.E. & Torsvik, G., 1995. "Limited Intertemporal Commitment and Job Design," Economics Papers 102, Economics Group, Nuffield College, University of Oxford.
  5. Schnedler, Wendelin, 2003. "On the Prudence of Rewarding A While Hoping for B," IZA Discussion Papers 765, Institute for the Study of Labor (IZA).
  6. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
  7. Meyer, Margaret A & Vickers, John, 1997. "Performance Comparisons and Dynamic Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 547-81, June.
  8. Bengt Holmstrom & Paul R. Milgrom, 1985. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Cowles Foundation Discussion Papers 742, Cowles Foundation for Research in Economics, Yale University.
  9. Dewatripont, Mathias & Jewitt, Ian & Tirole, Jean, 1999. "The Economics of Career Concerns, Part II: Application to Missions and Accountability of Government Agencies," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 199-217, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Dietrichson, Jens, 2013. "Coordination Incentives, Performance Measurement and Resource Allocation in Public Sector Organizations," Working Papers 2013:26, Lund University, Department of Economics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hhs:nhhfms:2004_021. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stein Fossen).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.