TY - UNPB

T1 - Push or pull? Performance pay, incentives, and information

AU - Chen, Yu

AU - Rietzke, David Michael

PY - 2016/9

Y1 - 2016/9

N2 - We study a principal-agent model wherein the agent is better informed of the prospects of the project, and the project requires both an observable and unobservable input. We show (1) Performance pay may not be optimal, even if output is the only informative signal of an essential input; (2) Total surplus tends to be higher if one input is unobservable than if both inputs are observable; and (3) Bunching may arise amongst low and intermediate types. We explore the implications for push and pull programs used to encourage R&D activity, but our results have applications beyond this context.

AB - We study a principal-agent model wherein the agent is better informed of the prospects of the project, and the project requires both an observable and unobservable input. We show (1) Performance pay may not be optimal, even if output is the only informative signal of an essential input; (2) Total surplus tends to be higher if one input is unobservable than if both inputs are observable; and (3) Bunching may arise amongst low and intermediate types. We explore the implications for push and pull programs used to encourage R&D activity, but our results have applications beyond this context.

KW - Pay for Performance

KW - Moral Hazard

KW - Adverse Selection

KW - Observable Action

KW - Principal-Agent Problem

KW - Grants

KW - Prizes

M3 - Working paper

T3 - Economics Working Paper Series

BT - Push or pull? Performance pay, incentives, and information

PB - Lancaster University, Department of Economics

CY - Lancaster

ER -