The economics of wild goose chases

Canice Prendergast

RAND Journal of Economics, 2015, vol. 46, issue 1, 146-164

Abstract: type="main">

Empirical evidence consistently finds that incentive pay is more frequent when authority is delegated to workers than when their superiors hold authority. We provide a model where incentive pay results in the abuse of authority by their superiors, and (under reasonable conditions) implies that (i) incentive pay is higher when an agent holds control rights than when her principal has authority, (ii) effort is less responsive on the margin to incentive pay when the principal holds authority, and (iii) more incentive pay can reduce effort under authority, even on tasks that can be easily measured.

Date: 2015
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