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168
The provision of incentives in firms
- JOURNAL OF ECONOMIC LITERATURE
, 1999
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Executive Compensation
, 1999
"... This paper summarizes the empirical and theoretical research on executive compensation and provides a comprehensive and up-to-date description of pay practices (and trends in pay practices) for chief executive officers (CEOs). Topics discussed include the level and structure of CEO pay (including de ..."
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Cited by 603 (19 self)
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This paper summarizes the empirical and theoretical research on executive compensation and provides a comprehensive and up-to-date description of pay practices (and trends in pay practices) for chief executive officers (CEOs). Topics discussed include the level and structure of CEO pay (including detailed analyses of annual bonus plans, executive stock options, and option valuation), international pay differences, the pay-setting process, the relation between CEO pay and firm performance (“pay-performance sensitivities”), the relation between sensitivities and subsequent firm performance, relative performance evaluation, executive turnover, and the politics of CEO pay.
Relative performance evaluation for chief executive officers
- Industrial and Labor Relations Review 43:30S–51S
, 1990
"... Measured individual performance often depends on random factors which also affect the performances of other workers in the same firm, industry, or market. In these cases, relative performance evaluation (RPE) can provide incentives while partially insulating workers from the common uncertainty. Basi ..."
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Cited by 223 (9 self)
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Measured individual performance often depends on random factors which also affect the performances of other workers in the same firm, industry, or market. In these cases, relative performance evaluation (RPE) can provide incentives while partially insulating workers from the common uncertainty. Basing pay on relative performance, however, generates incentives to sabotage the measured performance of co-workers, to collude with co-workers and shirk, and to apply for jobs with inept co-workers. RPE contracts also are less desirable when the output of co-workers is expensive to measure or in the presence of production externalities, as in the case of team production. The purpose of this paper is to review the benefits and costs of RPE and to test for the presence of RPE in one occupation where the benefits plausibly exceed the costs: toplevel management. Rewarding chief executive officers (CEOs) based on performance measured relative to the industry or market creates incentives to take actions increasing shareholder wealth while insuring executives against the vagaries of the stock and product markets that are beyond their control. We expect RPE to be a common feature of
Monitoring Agents with Other Agents
, 1989
"... Abstract. I investigate the multiple agency problem when agents can monitor the per-formance of other agents. A particularly interesting incentive scheme of this sort has been used by the Grameen Bank of Bangladesh and I use this example to investigate some general questions involving group incentiv ..."
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Cited by 140 (1 self)
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Abstract. I investigate the multiple agency problem when agents can monitor the per-formance of other agents. A particularly interesting incentive scheme of this sort has been used by the Grameen Bank of Bangladesh and I use this example to investigate some general questions involving group incentive schemes. For example, I show that a principal prefers a monitor who can reduce the costs of desirable actions rather than increase the cost of undesirable actions. I also consider when it is beneficial to the principal for agents to mutually insure each other. Finally, I examine a sequential incentive plan in which agents form a group and first serve as monitors and later are monitored by other agents.
Optimal Incentives for Teams
"... Much of the existing theory of incentives describes a static relationship that lasts for just one transaction. This static assumption is not only unrealistic, but the resulting predictions appear to be at odds with many work organizations. The current paper introduces possible long-term interacti ..."
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Cited by 90 (1 self)
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Much of the existing theory of incentives describes a static relationship that lasts for just one transaction. This static assumption is not only unrealistic, but the resulting predictions appear to be at odds with many work organizations. The current paper introduces possible long-term interaction among agents, and studies how the design of explicit incentives and work organizations can exploit, and interact with, the implicit incentives generated by the repeated interaction of hc agents. The-optimal incentive scheme is shown to display many observed features of the increasingly popular "teams," such as low-powered, group incentives, and the use of self monitoring and decentralization of authority among team members.
Decentralization and collusion
, 1998
"... We consider a model where agents work in sequence on a project, share information not available to the principal, and can collude. Due to limited liability the Coase theorem does not apply. The distribution of surplus among the agents is therefore an important control variable for the principal, whi ..."
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Cited by 51 (1 self)
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We consider a model where agents work in sequence on a project, share information not available to the principal, and can collude. Due to limited liability the Coase theorem does not apply. The distribution of surplus among the agents is therefore an important control variable for the principal, which gives us a theory of how to delegate in an organization subject to moral hazard. The optimal distribution of surplus can always be achieved by delegating in the right way (decentralization) without using "message games."
Moral Hazard and Other-regarding Preferences
- Japanese Economic Review
, 2004
"... In this paper I attempt to obtain new theoretical insights by combining the standard moral hazard models of principal-agent relationships with theories of other-regarding (inequity averse or status-seeking) preferences. In the benchmark principal-agent model, the principal and the agent are both ris ..."
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Cited by 50 (0 self)
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In this paper I attempt to obtain new theoretical insights by combining the standard moral hazard models of principal-agent relationships with theories of other-regarding (inequity averse or status-seeking) preferences. In the benchmark principal-agent model, the principal and the agent are both risk neutral, while the agent is wealth constrained, and hence the basic tradeoff between incentives and rent extraction arises. I show that other-regarding preferences interact with incentives in nontrivial ways. In particular, the principal is in general worse off as the agent cares more about the well-being of the principal. I then extend the analysis to a multi-agent setting. When each agent cares about the well-being of the other agent, either a team contract or a relative performance contract is optimal even though there is no technological externality nor correlation. The extreme team contract is “fair ” and more likely to be optimal as actions become mutually observable. However, team contracts are never optimal when the agents are competitive or status-seeking.
Product Market Regulation and Macroeconomic Performance: A Review of Cross-Country Evidence
- Boston College Working Papers in Economics No. 623
, 2008
"... The main purpose of this paper is to provide a critical overview of the recent empirical contributions that use cross-country data to study the effect of product market regulation and reform on a country’s macroeconomic performance. After a review of the theoretical literature and of relevant micro- ..."
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Cited by 34 (3 self)
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The main purpose of this paper is to provide a critical overview of the recent empirical contributions that use cross-country data to study the effect of product market regulation and reform on a country’s macroeconomic performance. After a review of the theoretical literature and of relevant micro-econometric evidence, the paper discusses the main data and methodological issues related to empirical work on this topic. It then critically evaluates the cross-country evidence on the effect of product market regulation on markups, firm dynamics, investment, employment, innovation, productivity and output growth. A summary of what we learn from the econometric results concludes the paper.
Monitoring by delegates or by peers?. Joint liability loans under moral hazard
, 2000
"... This paper analyzes the conditions under which joint liability loans to encourage peer-monitoring would be offered and chosen ahead of monitored individual liability alternatives on a competitive loan market when production and monitoring activities are subject to moral hazard. In contrast to other ..."
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Cited by 29 (3 self)
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This paper analyzes the conditions under which joint liability loans to encourage peer-monitoring would be offered and chosen ahead of monitored individual liability alternatives on a competitive loan market when production and monitoring activities are subject to moral hazard. In contrast to other analyses, the case for joint liability loans does not rest on an assumed monitoring or information advantage by borrowers but instead relies on a incentive diversification effect that cannot be replicated by outside intermediaries. Joint liability clauses are chosen to implement a preferred Nash equilibrium in a multi-agent, multi-tasking game, where borrowers must be given incentives to be diligent as financed entrepreneurs and as monitors of others. Potential side contracting or collusion amongst borrowers is shown to only harm credit access, even when borrowers enjoy a monitoring advantage relative to outsiders.
Rural Financial Markets in Developing Countries
- In Handbook of Agricultural Economics, C.Evenson, R. and Pingali, P., eds., Elsevier, Chapter 56, 2857-2908. tel-00871199, version 1 - 9 Oct 2013
, 2007
"... Notes: Center Discussion Papers are preliminary materials circulated to stimulate discussions and critical comments. Prepared for The Handbook of Agricultural Economics, Vol. 3, Agricultural ..."
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Cited by 28 (2 self)
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Notes: Center Discussion Papers are preliminary materials circulated to stimulate discussions and critical comments. Prepared for The Handbook of Agricultural Economics, Vol. 3, Agricultural
