Incentive Design and Mis-Allocated Effort
Incentives often distort behavior: they induce agents to exert effort but this effort is not employed optimally. This paper proposes a theory of incentive design allowing for such distorted behavior. At the heart of the theory is a trade-off between getting the agent to exert effort and ensuring that this effort is used well. The theory covers various moral-hazard models, ranging from traditional single-task to multi-task models. It also provides -for the first time- a formalization and proofs for various widely-spread perceived wisdoms about incentive design and distorted behavior.
|Date of creation:||2013|
|Date of revision:|
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- Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
- Bengt Holmstrom, 1997.
"Moral Hazard and Observability,"
Levine's Working Paper Archive
1205, David K. Levine.
- Wendelin Schnedler, 2008. "When Is It Foolish to Reward for A While Benefiting from B?," Journal of Labor Economics, University of Chicago Press, vol. 26(4), pages 595-619, October.
- Srikant Datar & Susan Cohen Kulp & Richard A. Lambert, 2001. "Balancing Performance Measures," Journal of Accounting Research, Wiley Blackwell, vol. 39(1), pages 75-92, 06.
- Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
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