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The New Soviet Incentive Model

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  • M. L. Weitzman

Abstract

Suppose y is a "performance indicator" for an enterprise. As examples, y might stand for output, profits, cost savings, or factor productivity. With standard piecework reward systems the manager of an enterprise will try to convince his superiors that y is likely to be small, thereby entitling him to a lower target which is easier to fulfill. A new reform in the Soviet economy is aimed at stimulating more ambitious plans by making the bonus size depend on the plan target as well as the degree to which it has been fulfilled. This novel incentive scheme is modelled in the present paper and its basic properties are analyzed. Some applications and extensions are proposed.

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Bibliographic Info

Paper provided by Massachusetts Institute of Technology (MIT), Department of Economics in its series Working papers with number 141.

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Date of creation: Oct 1974
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Handle: RePEc:mit:worpap:141

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Web page: http://econ-www.mit.edu/
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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), DEPARTMENT OF ECONOMICS, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
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Cited by:
  1. Kato, Takao & Long, Cheryl, 2005. "Executive Compensation, Firm Performance, and Corporate Governance in China: Evidence from Firms Listed in the Shanghai and Shenzhen Stock Exchanges," IZA Discussion Papers 1767, Institute for the Study of Labor (IZA).
  2. Jan Thomas Martini & Rainer Niemann & Dirk Simons, 2007. "Transfer Pricing or Formula Apportionment? Tax-Induced Distortions of Multinationals’ Investment and Production Decisions," CESifo Working Paper Series 2020, CESifo Group Munich.
  3. Kato, Takao & Long, Cheryl, 2006. "CEO Turnover, Firm Performance and Enterprise Reform in China: Evidence from New Micro Data," IZA Discussion Papers 1914, Institute for the Study of Labor (IZA).
  4. Jones, Derek C. & Kato, Takao, 1996. "The determinants of chief executive compensation in transitional economies: Evidence from Bulgaria," Labour Economics, Elsevier, vol. 3(3), pages 319-336, October.
  5. Kato, Takao & Long, Cheryl, 2006. "CEO turnover, firm performance, and enterprise reform in China: Evidence from micro data," Journal of Comparative Economics, Elsevier, vol. 34(4), pages 796-817, December.
  6. Edward P. Lazear, 1986. "Incentive Contracts," NBER Working Papers 1917, National Bureau of Economic Research, Inc.
  7. Martini, Jan Thomas & Niemann, Rainer & Simons, Dirk, 2007. "Transfer pricing or formula apportionment? Tax-induced distortions of multinationals' investment and production decisions," arqus Discussion Papers in Quantitative Tax Research 27, arqus - Arbeitskreis Quantitative Steuerlehre.
  8. Kato, Takao & Long, Cheryl, 2008. "Tournaments and Managerial Incentives in China's Listed Firms: New Evidence," IZA Discussion Papers 3730, Institute for the Study of Labor (IZA).
  9. Martin Gaynor, 1989. "The presence of moral hazard in budget breaking," Public Choice, Springer, vol. 61(3), pages 261-267, June.
  10. Itami, Hiroyuki, 1982. "Analysis of the Optimal Linear Goal-based Incentive System," Hitotsubashi Journal of commerce and management, Hitotsubashi University, vol. 17(1), pages 42-65, January.

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