The New Soviet Incentive Model

Martin Weitzman

Bell Journal of Economics, 1976, vol. 7, issue 1, 251-257

Abstract: Suppose y is a "performance indicator" for an enterprise. As examples, y might stand for output, profits, cost savings, or factor productivity. With standard piecework reward systems the manager of an enterprise will try to convince his superiors that y is likely to be small, thereby entitling him to a lower target which is easier to fulfill. A new reform in the Soviet economy is aimed at stimulating more ambitious plans by making the bonus size depend on the plan target as well as the degree to which it has been fulfilled. This novel incentive scheme is modelled in the present paper and its basic properties are analyzed. Some applications and extensions are proposed.

Date: 1976
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