Optimal incentives and the time dimension of performance measurement

Michael Raith

Journal of Economic Theory, 2012, vol. 147, issue 6, 2158-2189

Abstract: I study optimal incentive contracting in a two-period model in which an agentʼs action generates an output with delay, and a noisy signal of output early. Under very general conditions, the optimal contract depends on the early signal as well as on output even if the signal is uninformative of effort, given output, and even if the agent has access to credit. An important characteristic of any performance measure, therefore, is the time at which it is generated. The results shed light on the use of forward-looking performance measures such as stock returns or earnings with accruals for accounts receivable.

Keywords: Optimal incentives; Performance measurement; Intertemporal consumption; Informativeness; Timeliness (search for similar items in EconPapers)
JEL-codes: D86 D91 M52 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:147:y:2012:i:6:p:2158-2189

DOI: 10.1016/j.jet.2012.09.010

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