Optimal Incentives for Sequential Production Processes

Eyal Winter ()
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Eyal Winter: Hebrew University of Jerusalem

RAND Journal of Economics, 2006, vol. 37, issue 2, pages 376-390

Abstract: I study optimal incentive schemes in organizations where agents perform their tasks sequentially. I consider a model in which agents' effort decisions are mapped into the probability of the project's success. An optimal investment-inducing mechanism allocates rewards to agents so as to induce all of them to exert effort in equilibrium at minimal cost to the principal. I characterize the unique optimal mechanism in several versions of my benchmark model. I also address the problem of allocating individuals with diverse qualifications to different slots of the production process as well as allocating tasks of different importance across different agents. Ordering information: This article can be ordered from http://gemini.econ.umd.edu/cgi-bin/rje_online.cgi?action=buy&year=2006&issue=sum&page=376&tid=30492&sc=1869P1N9.

Date: 2006
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