Traps and incentives

Manes Eran (), Shapira Daniel () and Tobol Yossi ()
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Manes Eran: Department of public policy, Ben-Gurion University of the Negev, Israel, and School of Industrial Management, Lev Institute of Technology, Jerusalem, Israel
Shapira Daniel: The Department of Business Administration, Guilford Glazer Faculty of Business, Ben Gurion University, Beersheba, Israel
Tobol Yossi: School of Industrial Management, Lev Institute of Technology, Jerusalem, Israel, and IZA

The B.E. Journal of Theoretical Economics, 2018, vol. 18, issue 2, 24

Abstract: Many theories of development traps rely on coordination failures. In this paper we develop a theory of incentive traps in organizations, which demonstrates how the provision of incentives may itself become reinforcing for the emergence of traps. Our theory marks the dynamic interplay between incentives and performance in teams where peer-effects are present, the returns to which accrue far beyond the career horizon of current cohort of agents, while taking into account both intergenerational learning dynamics and the existence of markets for talent. The theory may help explain why high-quality research is rewarded less in those institutions where it is mostly scarce, why relative wages of professors in some developing countries are significantly lower than in developed economies, or why governments expenditure on education as percent of GDP is substantially lower in LDCs as compared to developed economies.

Keywords: development traps; incentives; organizations (search for similar items in EconPapers)
JEL-codes: O12 O31 O33 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1515/bejte-2016-0036

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