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All-or-nothing payments

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  • Chen, Bo

Abstract

We develop a general principal–agent framework in which to study optimal incentive schemes where agents are hired to work on multiple heterogeneous and interdependent projects. The incentive schemes can be based on output measures, interpreted as the principal’s payoffs, as well as input measures, regarded as observation of some of the agents’ efforts. We identify that a unifying feature of the optimal incentive schemes, called all-or-nothing payments, arises in three natural scenarios of the general framework: unobservable inputs, verifiable inputs, and observable but unverifiable inputs. Our framework and results embed and generalize several previous studies on multitask principal–agent problems with a limited liability constraint.

Suggested Citation

  • Chen, Bo, 2012. "All-or-nothing payments," Journal of Mathematical Economics, Elsevier, vol. 48(3), pages 133-142.
  • Handle: RePEc:eee:mateco:v:48:y:2012:i:3:p:133-142
    DOI: 10.1016/j.jmateco.2012.02.003
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Balmaceda, Felipe, 2016. "Optimal task assignments," Games and Economic Behavior, Elsevier, vol. 98(C), pages 1-18.
    2. repec:bla:jfinan:v:72:y:2017:i:3:p:1253-1284 is not listed on IDEAS
    3. repec:eee:deveco:v:127:y:2017:i:c:p:72-90 is not listed on IDEAS
    4. Gregory Phelan, 2017. "Correlated Default and Financial Intermediation," Journal of Finance, American Finance Association, vol. 72(3), pages 1253-1284, June.
    5. Rui R. Zhao, 2008. "All-or-Nothing Monitoring," American Economic Review, American Economic Association, vol. 98(4), pages 1619-1628, September.
    6. Bo Chen & Yu Chen & David Rietzke, 2017. "Simple Contracts under Observable and Hidden Actions," Graz Economics Papers 2017-07, University of Graz, Department of Economics.
    7. Yu Chen & David Michael Rietzke, 2016. "Push or pull? Performance pay, incentives, and information," Working Papers 127987900, Lancaster University Management School, Economics Department.

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