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Optimal Incentives for Sequential Production Processes

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  • Eyal Winter

    (Hebrew University of Jerusalem)

Abstract

I study optimal incentive schemes in organizations where agents perform their tasks sequentially. I consider a model in which agents' effort decisions are mapped into the probability of the project's success. An optimal investment-inducing mechanism allocates rewards to agents so as to induce all of them to exert effort in equilibrium at minimal cost to the principal. I characterize the unique optimal mechanism in several versions of my benchmark model. I also address the problem of allocating individuals with diverse qualifications to different slots of the production process as well as allocating tasks of different importance across different agents.

Suggested Citation

  • Eyal Winter, 2006. "Optimal Incentives for Sequential Production Processes," RAND Journal of Economics, The RAND Corporation, vol. 37(2), pages 376-390, Summer.
    • Handle: RePEc:rje:randje:v:37:y:2006:2:p:376-390
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    Cited by:

    1. Pol Antràs & Davin Chor, 2013. "Organizing the Global Value Chain," Econometrica, Econometric Society, vol. 81(6), pages 2127-2204, November.
    2. Eyal Winter, 2009. "Incentive Reversal," American Economic Journal: Microeconomics, American Economic Association, vol. 1(2), pages 133-147, August.
    3. Edmans, Alex & Goldstein, Itay & Zhu, John, 2011. "Contracting with Synergies," Working Papers 11-65, University of Pennsylvania, Wharton School, Weiss Center.
    4. Steiger, Eva-Maria & Zultan, Ro'i, 2014. "See no evil: Information chains and reciprocity," Journal of Public Economics, Elsevier, vol. 109(C), pages 1-12.
    5. Ludwig, Sandra & Strassmair, Christina, 2009. "An Experimental study on the information structure in teams," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 277, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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