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Optimal incentives for sequential production processes

Research output: Contribution to journalJournal articlepeer-review

<mark>Journal publication date</mark>06/2006
<mark>Journal</mark>RAND Journal of Economics
Issue number2
Number of pages15
Pages (from-to)376-390
Publication StatusPublished
<mark>Original language</mark>English


I study optimal incentive schemes in organizations where agents perform their tasks sequentially. I consider a model in which agents ' effort decisions are mapped into the probability of the project 's success. An optimal investment-inducing mechanism allocates rewards to agents so as to induce all of them to exert effort in equilibrium at minimal cost to the principal. I characterize the unique optimal mechanism in several versions of my benchmark model. I also address the problem of allocating individuals with diverse qualifications to different slots of the production process as well as allocating tasks of different importance across different agents. Copyright © 2006, RAND.