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Performance Incentives with Award Constraints

Author

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  • Courty, Pascal
  • Marschke, Gerald

Abstract

This Paper studies the provision of incentives in a large US training organization, which is divided into about 50 independent pools of training agencies. The number and the size of the agencies within each pool vary greatly. Each pool distributes performance incentive awards to the training agencies it supervises, subject to two constraints: the awards cannot be negative and the sum of the awards cannot exceed an award budget. We characterize the optimal award function and derive simple predictions about how award prizes should depend on the number of agencies, on their sizes, and on their performances. Our results indicate that the constraints on the award distribution bind and reduce the overall efficiency of the incentive system.

Suggested Citation

  • Courty, Pascal & Marschke, Gerald, 2001. "Performance Incentives with Award Constraints," CEPR Discussion Papers 2720, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2720
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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

    Keywords

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    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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