Incentives in Markets, Firms, and Governments

Atif Rehman Mian

Journal of Law, Economics and Organization, 2008, vol. 24, issue 2, pages 273-306

Abstract: We construct a simple career concerns model where high-powered incentives can distort the composition of effort by inducing excessive signaling. We show that in the presence of this type of career concerns, markets typically fail to limit competitive pressures and cannot commit to the desirable low-powered incentives. Firms may be able to weaken incentives and improve efficiency by obscuring information about individual workers' contribution to output, and thus reducing their willingness to signal through a moral-hazard-in-teams reasoning. However, firms themselves have a commitment problem, since firm owners would like to provide high-powered incentives to their employees to increase profits. When firms cannot refrain from doing so, government provision may be useful as a credible commitment to low-powered incentives. Governments may be able to achieve this even when operated by a self-interested politician. Among other reasons, this may happen because of the government's ability to limit yardstick competition and reelection uncertainty. We discuss possible applications of our theory to pervasive government involvement in predominantly private goods such as education and management of pension funds. (JEL D23, L22, H10, H52) The Author 2007. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Date: 2008
References: Add references at CitEc
Citations View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1093/jleo/ewm055 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Incentives in Markets, Firms and Governments (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:oup:jleorg:v:24:y:2008:i:2:p:273-306

Ordering information: This journal article can be ordered from
http://www.oup.co.uk/journals

Access Statistics for this article

Journal of Law, Economics and Organization is edited by Pablo T. Spiller

More articles in Journal of Law, Economics and Organization from Oxford University Press
Address: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
Series data maintained by Oxford University Press ().