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Incentives and Discrimination

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Author Info
Eyal Winter ()

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Abstract

Optimal incentive mechanisms may require that agents are rewarded differentially even when they are completely identical and are induced to act the same. We demonstrate this point by means of a simple incentive model where agents’ decisions about effort exertion is mapped into a probability that the project will succeed. We give necessary and sufficient conditions for optimal incentive mechanisms to be discriminatory. We also show that full discrimination across all agents is required if and only if the technology has increasing return to scale. In the non-symmetric framework we show that negligible differences in agents’ attributes may result in major differences in rewards in the unique optimal mechanism.

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Publisher Info
Paper provided by Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem in its series Discussion Paper Series with number dp313.

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Length: 16 pages
Date of creation: May 2003
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Publication status: Published in American Economic Review, 2004, vol. 94, pp. 764-773.
Handle: RePEc:huj:dispap:dp313

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  1. 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.
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  2. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75. [Downloadable!] (restricted)
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  1. Gould, Eric D & Winter, Eyal, 2007. "Interactions Between Workers and the Technology of Production: Evidence from Professional Baseball," CEPR Discussion Papers 6527, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Grüner, Hans Peter, 2007. "Information Technology, Efficient Restructuring and the Productivity Puzzle," CEPR Discussion Papers 6109, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Grüner, Hans Peter, 2007. "Protocol Design and (De-)Centralization," CEPR Discussion Papers 6357, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Yuval Emek & Michal Feldman, 2007. "Computing an Optimal Contract in Simple Technologies," Levine's Bibliography 843644000000000184, UCLA Department of Economics. [Downloadable!]
  5. Eyal Winter & Ignacio Garcia-Jurado & Jose Mendez-Naya & Luciano Mendez-Naya, 2009. "Mental Equilibrium and Rational Emotions," Discussion Paper Series dp521, Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem. [Downloadable!]
  6. Kerstin Puschke, . "Task Assignment and Organizational Form," Papers 033, Departmental Working Papers. [Downloadable!]
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  7. Antonio Cabrales & Raffaele Miniaci & Marco Piovesan & Giovanni Ponti, 2007. "An experiment on markets and contracts : do social preferences determine corporate culture?," Economics Working Papers we072010, Universidad Carlos III, Departamento de Economía. [Downloadable!]
  8. Hennessy, David A., 2005. "Biosecurity and Infectious Animal Disease," Staff General Research Papers 12475, Iowa State University, Department of Economics. [Downloadable!]
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  9. Gould, Eric D. & Kaplan, Todd R., 2008. "Learning Unethical Practices from a Co-worker: The Peer Effect of Jose Canseco," IZA Discussion Papers 3328, Institute for the Study of Labor (IZA). [Downloadable!]
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  10. Sebastian Goerg & Sebastian Kube & Ro'i Zultan, 2007. "Treating Equals Unequally - Incentives in Teams, Workers' Motivation and Production Technology," Bonn Econ Discussion Papers bgse17_2007, University of Bonn, Germany, revised Jan 2008. [Downloadable!]
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  11. Eyal Winter, 2007. "Incentive Reversal," Levine's Working Paper Archive 843644000000000241, David K. Levine. [Downloadable!]
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  12. Yuval Emek & Michal Feldman, 2007. "Computing an Optimal Contract in Simple Technologies," Discussion Paper Series dp452, Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem. [Downloadable!]
  13. Antonio Cabrales & Raffaele Miniaci & Marco Piovesan & Giovanni Ponti, 2009. "Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts," Working Papers 2009-09, FEDEA. [Downloadable!]
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  14. Jirjahn, Uwe & Kraft, Kornelius, 2008. "Teamwork and Intra-Firm Wage Dispersion among Blue-Collar Workers," IZA Discussion Papers 3291, Institute for the Study of Labor (IZA). [Downloadable!]
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