Time Dependence and Time Preference: Implications for Compensation Structure

Doug J. Chung (), Byungyeon Kim () and Byoung G. Park ()
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Doug J. Chung: McCombs School of Business, University of Texas at Austin, Austin, Texas 78705
Byungyeon Kim: Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455
Byoung G. Park: Department of Economics, University at Albany, Albany, New York 12222

Marketing Science, 2025, vol. 44, issue 6, 1339-1361

Abstract: This study jointly examines agents’ time dependence—period effects within instantaneous utility—and time preference—the behavior on discounting future utility. It considers the start- and end-of-period effects for time dependence and exponential and hyperbolic discounting for time preference. The study provides formal identification arguments and sufficient conditions for both time constructs, including the duration of time dependence. Using granular individual data and variations in the compensation structure, the empirical analysis separately identifies the two time constructs. Accounting for agents’ time assessment, counterfactual studies examine how changes in compensation structures affect agents’ behavior and, subsequently, their sales outcomes. The findings reveal a trade-off between long- and short-quota cycles, demonstrate the nonlinearity of sales performance relative to the duration of the compensation cycle, and show how quota-bonus plans and commissions can motivate different types of agents.

Keywords: time dependence; period effects; time preference; present bias; hyperbolic discounting; exponential discounting; compensation; dynamic structural models; identification (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:44:y:2025:i:6:p:1339-1361

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