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Incentives in Organizations

  • Robert Gibbons

In this paper, the author summarizes four new strands in agency theory that help him think about incentives in real organizations. As a point of departure, The author begins with a quick sketch of the classic agency model. He then discusses static models of objective performance measurement that sharpen Kerr's argument; repeated-game models of subjective performance assessments; incentives for skill development rather than simply for effort; and incentive contracts between versus within organizations. The author concludes by suggesting two avenues for further progress in agency theory: better integration with organizational economics, as launched by Coase (1937) and reinvigorated by Williamson (1975, 1985), and cross-pollination with other fields that study organizations, including industrial relations, organizational sociology, and social psychology.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.12.4.115
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 12 (1998)
Issue (Month): 4 (Fall)
Pages: 115-132

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Handle: RePEc:aea:jecper:v:12:y:1998:i:4:p:115-32
Note: DOI: 10.1257/jep.12.4.115
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  17. Brown, Keith C & Harlow, W V & Starks, Laura T, 1996. " Of Tournaments and Temptations: An Analysis of Managerial Incentives in the Mutual Fund Industry," Journal of Finance, American Finance Association, vol. 51(1), pages 85-110, March.
  18. Canice Prendergast, 1993. "The Role of Promotion in Inducing Specific Human Capital Acquisition," The Quarterly Journal of Economics, Oxford University Press, vol. 108(2), pages 523-534.
  19. 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.
  20. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
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  25. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
  26. W. Bentley MacLeod & James Malcomson, 1997. "Motivation and Markets," Boston College Working Papers in Economics 339., Boston College Department of Economics.
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  29. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-91, September.
  30. Olivier Compte, 1998. "Communication in Repeated Games with Imperfect Private Monitoring," Econometrica, Econometric Society, vol. 66(3), pages 597-626, May.
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