Designing Incentives under Multidimensional Performance Measures
We attempt to shed some light on the problem of providing incentives to service providers such as teachers and doctors. Often, outcomes of such services are not verifiable, and this has been cited as a reason for lack of incentive provision. We derive the contract offered by a principal if, in addition to moral hazard, the output of the agent may not be verified. We show that verified high attainment may not be rewarded. In this case, the bonus is increasing in the ability to verify output. We also show that an increase in potential nonverifiability may lead to efficiency gains and be beneficial for the principal.
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Volume (Year): 168 (2012)
Issue (Month): 4 (December)
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References listed on IDEAS
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- Luca Anderlini & Leonardo Felli, 1994.
"Incomplete Written Contracts: Undescribable States of Nature,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 109(4), pages 1085-1124.
- Anderlini, L. & Felli, L., 1993. "Incomplete Written Contracts: Undescribable States of Nature," Papers 183, Cambridge - Risk, Information & Quantity Signals.
- Thomas S. Dee & Benjamin J. Keys, 2004. "Does merit pay reward good teachers? Evidence from a randomized experiment," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 23(3), pages 471-488.
- Bull, Jesse & Watson, Joel, 2004. "Evidence disclosure and verifiability," Journal of Economic Theory, Elsevier, vol. 118(1), pages 1-31, September.
- Bull, Jesse & Watson, Joel, 2000. "Evidence Disclosure and Verifiability," University of California at San Diego, Economics Working Paper Series qt6th0060j, Department of Economics, UC San Diego.
- Bull, Jesse & Watson, Joel, 2002. "Evidence Disclosure and Verfiability," University of California at San Diego, Economics Working Paper Series qt19p7z2gm, Department of Economics, UC San Diego.
- Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
- Dixit, Avinash, 1997. "Power of Incentives in Private versus Public Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 378-382, May. Full references (including those not matched with items on IDEAS)
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