Rank Uncertainty in Organizations

Marina Halac, Elliot Lipnowski and Daniel Rappoport

American Economic Review, 2021, vol. 111, issue 3, 757-86

Abstract: A principal incentivizes a team of agents to work by privately offering them bonuses contingent on team success. We study the principal's optimal incentive scheme that implements work as a unique equilibrium. This scheme leverages rank uncertainty to address strategic uncertainty. Each agent is informed only of a ranking distribution and his own bonus, the latter making work dominant provided that higher-rank agents work. If agents are symmetric, their bonuses are identical. Thus, discrimination is strictly suboptimal, in sharp contrast with the case of public contracts (Winter 2004). We characterize how agents' ranking and compensation vary with asymmetric effort costs.

JEL-codes: D23 D62 D81 D82 D86 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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DOI: 10.1257/aer.20200555

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