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Gaming and Strategic Ambiguity in Incentive Provision

  • Margaret Meyer
  • Florian Ederer
  • Richard Holden

It is often suggested that incentive schemes under moral hazard can be gamed by an agent with superior knowledge of the environment, and that deliberate lack of transparency about the incentive scheme can reduce gaming.� We formally investigate these arguments.� Ambiguous incentive schemes induce more balanced efforts from an agent who performs multiple tasks and is better informed about the environment, but also impose more risk on the agent.� If tasks are sufficiently complementary for the principal, ambiguous schemes can dominate the best deterministic scheme and can completely eliminate the efficiency losses from the agent's better knowledge of the environment.

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File URL: http://www.economics.ox.ac.uk/materials/papers/12584/paper640.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 640.

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Date of creation: 17 Jan 2013
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Handle: RePEc:oxf:wpaper:640
Contact details of provider: Postal: Manor Rd. Building, Oxford, OX1 3UQ
Web page: http://www.economics.ox.ac.uk/
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  1. Raj Chetty & Adam Looney & Kory Kroft, 2007. "Salience and Taxation: Theory and Evidence," NBER Working Papers 13330, National Bureau of Economic Research, Inc.
  2. Sandeep Baliga & Tomas Sjöström, 2006. "Strategic Ambiguity and Arms Proliferation," Levine's Bibliography 122247000000001247, UCLA Department of Economics.
  3. Andrew Healy & Jennifer Pate, 2011. "Can Teams Help to Close the Gender Competition Gap?," Economic Journal, Royal Economic Society, vol. 121(555), pages 1192-1204, 09.
  4. Simon Burgess & Carol Propper & Marisa Ratto & Emma Tominey, 2011. "Incentives in the Public Sector: Evidence from a Government Agency," The Centre for Market and Public Organisation 11/265, Department of Economics, University of Bristol, UK.
  5. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
  6. Englmaier, Florian & Roider, Andreas & Sunde, Uwe, 2012. "The Role of Salience in Performance Schemes: Evidence from a Field Experiment," IZA Discussion Papers 6448, Institute for the Study of Labor (IZA).
  7. Scott E. Carrell & James E. West, 2010. "Does Professor Quality Matter? Evidence from Random Assignment of Students to Professors," Journal of Political Economy, University of Chicago Press, vol. 118(3), pages 409-432, 06.
  8. David Rahman, 2012. "But Who Will Monitor the Monitor?," American Economic Review, American Economic Association, vol. 102(6), pages 2767-97, October.
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