Incentive Design and Mis-Allocated Effort
AbstractIncentives often distort behavior: they induce agents to exert effort but this effort is not employed optimally. This paper proposes a theory of incentive design allowing for such distorted behavior. At the heart of the theory is a trade-off between getting the agent to exert effort and ensuring that this effort is used well. The theory covers various moral-hazard models, ranging from traditional single-task to multi-task models. It also provides -for the first time- a formalization and proofs for various widely-spread perceived wisdoms about incentive design and distorted behavior. --
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Bibliographic InfoPaper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79775.
Date of creation: 2013
Date of revision:
Find related papers by JEL classification:
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-02 (All new papers)
- NEP-CTA-2014-02-02 (Contract Theory & Applications)
- NEP-HRM-2014-02-02 (Human Capital & Human Resource Management)
- NEP-MIC-2014-02-02 (Microeconomics)
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.:
- Bengt Holmstrom, 1979.
"Moral Hazard and Observability,"
Bell Journal of Economics, The RAND Corporation,
The RAND Corporation, vol. 10(1), pages 74-91, Spring.
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- Bengt Holmstrom, 1997. "Moral Hazard and Observability," Levine's Working Paper Archive 1205, David K. Levine.
- Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 37(1), pages 7-63, March.
- Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(3), pages 598-614, June.
- Wendelin Schnedler, 2008. "When Is It Foolish to Reward for A While Benefiting from B?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 26(4), pages 595-619, October.
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