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Designing incentives under multi-dimensional performance measures

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.
0932-4569
Makris, Miltiadis
966df0dc-9caf-409e-9cbe-f2a800cdffda
Chakravarty, Surajeet
5919902d-7c99-4898-8fe7-453f3b8f794b
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.

Record type: Article

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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More information

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

Catalogue record

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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