Economics at your fingertips  

Incentive Contracts and Performance Measurement

George P Baker

Journal of Political Economy, 1992, vol. 100, issue 3, 598-614

Abstract: This paper examines the characteristics of incentive contracts in which the agent's payoff is not based on the principal's objective. The author shows that contracts based on such performance measures will not, in general, provide first-best incentives, even when the agent is risk neutral. The form of the optimal contract and the efficiency of this contract depend on the relationship between the performance measure used and the principal's objective. The model provides a simple and intuitive statistical measure. Applications to various incentive contracting situations, including the "gaming" of performance measures, the use of revenue-based sales commissions, and relative performance evaluation, are presented. Copyright 1992 by University of Chicago Press.

Date: 1992
References: Add references at CitEc
Citations View citations in EconPapers (338) Track citations by RSS feed

Downloads: (external link) full text (application/pdf)
Access to full text is restricted to subscribers. See for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

More articles in Journal of Political Economy from University of Chicago Press
Series data maintained by Journals Division ().

Page updated 2017-09-29
Handle: RePEc:ucp:jpolec:v:100:y:1992:i:3:p:598-614