Designing incentives under multi-dimensional performance measures
Designing incentives under multi-dimensional performance measures
We attempt to shed some light on the problem of providing incentives to service providers such as teachers and doctors. Often, outcomes of such services are not verifiable and this has been cited as a reason for lack of incentive provision. We derive the contract offered by a principal if, in addition to moral hazard, the output of the agent may not be verified. We show that verified high attainment may not be rewarded. In this case, the bonus in increasing with the ability to verify output. We also show that an increase in potential non-verifiability may lead to efficiency gains and be beneficial for the principal.
Makris, Miltiadis
966df0dc-9caf-409e-9cbe-f2a800cdffda
Chakravarty, Surajeet
5919902d-7c99-4898-8fe7-453f3b8f794b
May 2012
Makris, Miltiadis
966df0dc-9caf-409e-9cbe-f2a800cdffda
Chakravarty, Surajeet
5919902d-7c99-4898-8fe7-453f3b8f794b
Makris, Miltiadis and Chakravarty, Surajeet
(2012)
Designing incentives under multi-dimensional performance measures.
Journal of Institutional and Theoretical Economics JITE.
Abstract
We attempt to shed some light on the problem of providing incentives to service providers such as teachers and doctors. Often, outcomes of such services are not verifiable and this has been cited as a reason for lack of incentive provision. We derive the contract offered by a principal if, in addition to moral hazard, the output of the agent may not be verified. We show that verified high attainment may not be rewarded. In this case, the bonus in increasing with the ability to verify output. We also show that an increase in potential non-verifiability may lead to efficiency gains and be beneficial for the principal.
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Accepted/In Press date: May 2012
Published date: May 2012
Organisations:
Economics
Identifiers
Local EPrints ID: 339259
URI: http://eprints.soton.ac.uk/id/eprint/339259
ISSN: 0932-4569
PURE UUID: 5d533c1a-b01f-41af-afa3-0d4a692a64b2
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Date deposited: 29 May 2012 08:55
Last modified: 11 Dec 2021 00:26
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Contributors
Author:
Miltiadis Makris
Author:
Surajeet Chakravarty
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