Template-Type: ReDIF-Paper 1.0
Author-Name: Yu Chen
Author-Name-First: Yu
Author-Name-Last: Chen
Author-Name: David Michael Rietzke
Author-Name-First: David Michael
Author-Name-Last: Rietzke
Title: Push or pull? Performance pay, incentives, and information
Abstract: 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.
Creation-Date: 2016
File-URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/LancasterWP2016_015.pdf
File-Format: application/pdf
Number: 127987900
Classification-JEL: D82, D86, O31
Keywords: Pay for Performance, Moral Hazard, Adverse Selection, Observable Action, Principal-Agent Problem, Grants, Prizes
Handle: RePEc:lan:wpaper:127987900