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Behavioral Consequences of Corporate Incentives and Long-Term Bonuses: An Experimental Study

Author

Listed:
  • Andrew Schotter

    (Department of Economics, 269 Mercer Street, New York University, New York, New York 10003)

  • Keith Weigelt

    (Department of Management, The Wharton School, Steinberg-Dietrich Hall, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract

This paper examines whether long-term managerial bonus schemes change the allocative behavior of subjects in a laboratory setting. Using four different compensation schemes, we show that a necessary condition for reconciling divergent time preferences between principals and agents is a compensation scheme that induces behavior consistent with lower discount rates. Within subject results show that subjects recognize changes across compensation schemes and change their behavior as predicted by formal theory. Results also suggest that subjects become more myopic in their investment decisions if compensation contracts are incorrectly structured.

Suggested Citation

  • Andrew Schotter & Keith Weigelt, 1992. "Behavioral Consequences of Corporate Incentives and Long-Term Bonuses: An Experimental Study," Management Science, INFORMS, vol. 38(9), pages 1280-1298, September.
  • Handle: RePEc:inm:ormnsc:v:38:y:1992:i:9:p:1280-1298
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    File URL: http://dx.doi.org/10.1287/mnsc.38.9.1280
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    Cited by:

    1. repec:arp:tjssrr:2018:p:52-60 is not listed on IDEAS
    2. Rachel Croson & Karen Donohue, 2006. "Behavioral Causes of the Bullwhip Effect and the Observed Value of Inventory Information," Management Science, INFORMS, vol. 52(3), pages 323-336, March.
    3. Rachel Croson & Karen Donohue, 2002. "Experimental Economics and Supply-Chain Management," Interfaces, INFORMS, vol. 32(5), pages 74-82, October.

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