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Performance Incentives with Award Constraints

Author

Listed:
  • Pascal Courty
  • Gerald Marschke

Abstract

This paper studies the provision of incentives in a large government organization that is divided into independent pools of agencies. Each pool distributes performance awards to the agencies it supervises, subject to two constraints: the awards cannot be negative and the sum of the awards cannot exceed a fixed budget. The theory shows that the constraints on the award distribution bind for pools that are heterogeneous enough, resulting in inefficiencies. The empirical analysis presents conflicting evidence in light of the theory. A possible explanation is that the award designers may have additional objectives in addition to effort maximization.

Suggested Citation

  • Pascal Courty & Gerald Marschke, 2002. "Performance Incentives with Award Constraints," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 812-845.
    • Handle: RePEc:uwp:jhriss:v:37:y:2002:i:4:p:812-845
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    Cited by:

    1. Peter Z. Schochet & John A. Burghardt, 2008. "Do Job Corps performance measures track program impacts?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 27(3), pages 556-576.
    2. Huping Shang & Hongmei Liu & Wei Liu, 2024. "Unveiling the origins of non-performance-oriented behavior in China’s local governments: a game theory perspective on the performance-based promotion system," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 11(1), pages 1-11, December.
    3. Atkinson, Adele & Burgess, Simon & Croxson, Bronwyn & Gregg, Paul & Propper, Carol & Slater, Helen & Wilson, Deborah, 2009. "Evaluating the impact of performance-related pay for teachers in England," Labour Economics, Elsevier, vol. 16(3), pages 251-261, June.

    More about this item

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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