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Ex Ante Incentives and Ex Post Flexibility

Author

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  • Marcel Boyer
  • Jacques Robert

Abstract

Our objective in this paper is to illustrate and better understand the unavoidable arbitrage between incentives and flexibility in contexts of asymmetric information and to characterize the general features of an appropriate response to this challenge. We show that procedures and institutions in organizations which reduce the capacity to implement change may be necessary to generate the optimal level of inertia. We show that more flexibility in adapting to changing conditions or new information, typically known or observed by either the agent or the principal but not both, may come at the expense of efforts exerted up front by the agent to make the organization more successful. There is a trade-off in this context between ex ante efforts and ex post flexibility of adaptation. Nous développons dans cet article un modèle principal-agent permettant de mieux cerner l'arbitrage inéluctable entre incitations et flexibilité en situation d'information asymétrique. Nous caractérisons la meilleure réponse de l'organisation face à ce défi en termes d'un niveau optimal d'inertie. Une plus grande flexibilité d'adaptation aux changements dans l'environnement ou l'information, que ces changements soient observés par le principal ou l'agent, peut réduire les efforts non-observables consentis par l'agent pour assurer le succès de l'organisation.

Suggested Citation

  • Marcel Boyer & Jacques Robert, 1996. "Ex Ante Incentives and Ex Post Flexibility," CIRANO Working Papers 96s-14, CIRANO.
  • Handle: RePEc:cir:cirwor:96s-14
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    File URL: http://www.cirano.qc.ca/files/publications/96s-14.pdf
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    References listed on IDEAS

    as
    1. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    2. repec:adr:anecst:y:1989:i:15-16:p:13 is not listed on IDEAS
    3. Marcel Boyer & Michel Moreaux, 1989. "Uncertainty, Capacity and Flexibility: the Monopoly Case," Annals of Economics and Statistics, GENES, issue 15-16, pages 291-313.
    4. BOYER, Marcel & MOREAUX, Michel, 1995. "Capacity Commitment Versus Flexibility: The Technological Choice Nexus in a Strategic Context," Cahiers de recherche 9556, Universite de Montreal, Departement de sciences economiques.
    5. repec:adr:anecst:y:1989:i:15-16 is not listed on IDEAS
    6. Robert A. Jones & Joseph M. Ostroy, 1984. "Flexibility and Uncertainty," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 13-32.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Marcel Boyer, 1997. "L'économie des organisations : Mythes et réalités," CIRANO Working Papers 97s-02, CIRANO.
    2. Boyer, Marcel, 1996. "L’économie des organisations," L'Actualité Economique, Société Canadienne de Science Economique, vol. 72(3), pages 247-274, septembre.
    3. Juan D. Carrillo & Denis Gromb, 2005. "Culture in Organizations: Inertia and Uniformity," Levine's Bibliography 172782000000000053, UCLA Department of Economics.

    More about this item

    Keywords

    Incentives; Flexibility; Adaptation; Asymmetric Information; Incitations; Flexibilité; Adaptation; Information asymétrique;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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