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Performance Incentives with Award Constraints

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Author Info
Gerald Marschke
Pascal Courty

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Abstract

This paper studies the provision of incentives in a large U.S. training organization which is divided in 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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File URL: http://www.albany.edu/economics/research/workingp/2000/paper00-11.pdf
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Publisher Info
Paper provided by University at Albany, SUNY, Department of Economics in its series Discussion Papers with number 00-11.

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Date of creation: 2000
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Handle: RePEc:nya:albaec:00-11

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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
Phone: (518) 442-4735
Fax: (518) 442-4736

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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
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Web: http://www.albany.edu/economics/research/workingp/index.html

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Related research
Keywords: Performance Incentive; Limited liability; Fixed Award Budget; Government Organization.;

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Find related papers by JEL classification:
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D
O34 - Economic Development, Technological Change, and Growth - - Technological Change - - - Intellectual Property Rights

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. 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)
    Other versions:
  2. Edward P. Lazear, 1996. "Performance Pay and Productivity," NBER Working Papers 5672, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. 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)
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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. 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!]
  2. 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!]
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