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On the Design of Incentives in Business Firms---A Survey of Some Research

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  • L. Peter Jennergren

    (Odense University, Denmark)

Abstract

Quantitative approaches to the design of incentives in business firms are surveyed by drawing on writings from management science, finance, decision analysis, and mathematical economics. Two general incentive design situations are considered: How should incentives for the company president be designed, so that he or she will be induced to act in the interest of the ownership group or some other controlling syndicate? And how should incentives for divisions be designed, so that they will be induced to act in accordance with the interest of the whole firm? With respect to the first question, the following topics are discussed: the construction of an objective function for the firm derived through die stock market or directly from the preferences of the members of the controlling syndicate, the principal-agent situation, and the moral hazard situation. With respect to the second question, two topics are treated: the Soviet incentive scheme, and resource allocation.

Suggested Citation

  • L. Peter Jennergren, 1980. "On the Design of Incentives in Business Firms---A Survey of Some Research," Management Science, INFORMS, vol. 26(2), pages 180-201, February.
    • Handle: RePEc:inm:ormnsc:v:26:y:1980:i:2:p:180-201
    DOI: 10.1287/mnsc.26.2.180
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    Cited by:

    1. Piet Verheyen, 1998. "The Missing Link in Budget Models of Nonprofit Institutions: Two Practical Dutch Applications," Management Science, INFORMS, vol. 44(6), pages 787-800, June.
    2. Rudolf Vetschera, 2005. "Strategic Manipulation of Preference Information in Multi-Criteria Group Decision Methods," Group Decision and Negotiation, Springer, vol. 14(5), pages 393-414, September.
    3. Kriens, J. & van Lieshout, J.T.H.C. & Roemen, J.H.J. & Verheyen, P.A., 1983. "Management accounting and operational research," Other publications TiSEM da4f2baa-f699-48f2-80b7-8, Tilburg University, School of Economics and Management.
    4. Chow, Chee W. & Hwang, Richard Nen-Chen & Liao, Woody & Wu, Anne, 1998. "National culture and subordinates' upward communication of private information," The International Journal of Accounting, Elsevier, vol. 33(3), pages 293-311.
    5. Goedhart, Marc H. & Spronk, Jaap, 1995. "An interactive heuristic for financial planning in decentralized organizations," European Journal of Operational Research, Elsevier, vol. 86(1), pages 162-175, October.

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