When politicians are provided with insufficient incentives by the democratic election mechanism, we show that social welfare can be improved by threshold contracts. A threshold incentive contract stipulates a performance level which a politican must reach in order to have the right to stand for reelection. Read my lips would turn into read my contracts. Reelection thresholds can be offered by p...

We decentralize incentive efficient allocations in large adverse selection economies by introducing a Walrasian market for mechanisms, that is, for menus of contracts. Facing a budget constraint, informed individuals choose lotteries over mechanisms, while firms supply (slots at) mechanisms at given prices. An equilibrium requires that firms cannot favorably change, or cut, prices. We show that...

In a pioneering approach towards the explanation of the phenomenon of “yes man” behavior in organizations, Prendergast (1993) argued that incentive contracts in employment relationships generally make a worker distort his privately acquired information. This would imply that there is a trade-off between inducing a worker to exert costly effort and inducing him to tell the truth. In contrast, we...

We discuss a class of markets for durable goods where efficiency (or approximate efficiency) is obtained despite the presence of information asymmetries. In the model, the number of times a good has changed hands (the vintage of the good) is an accurate signal of its quality, each consumer self-selects into obtaining the vintage that the social planner would have assigned to her, and consumers’...

We analyze how inequity aversion interacts with incentive provision in an otherwise standard moral hazard model with two risk averse agents. We find that behindness aversion (suffering only when being worse off) among agents unambiguously increases agency costs of providing incentives. This holds true if agents also suffer from being better off unless they account for effort costs in their comp...

OBJECTIVE In many low-income countries, public health systems do not meet the needs and demands of the population. We aimed to assess the extent to which output-based payment could boost staff productivity at health care facilities. METHODS We assessed the performance of 15 health care centres in Kabutare, Rwanda, comparing productivity in 2001, when fixed annual bonuses were paid to staff, w...

Information systems (IS) projects are often delivered late, over budget, and not always to required specifications. This is an ongoing problem that has eluded researchers and practitioners for decades, but to overcome these problems better ways to manage the success of project development and implementation are needed. We investigate the use of incentives in IS projects during development and i...

Tosi and Gomez-Mejia, (1989) suggest that the challenge of corporate governance is to set up supervisory and incentive alignment mechanisms that alter the risk and effort orientation of agents to align them with the interests of principals. The research problem is to discern the conditions that align the goals of the agent with those of the principal. These conditions will promote maximum effor...

We examine the role of discretion in executive incentive contracts, and explore the trade-offs firms face in choosing among imperfect objective measures of individual performance, more-accurate but non-verifiable subjective measures, and overly broad objective measures of company-wide performance that includes the performance of all agents in the firm. We generate implications and test the mode...

When a principal hires an agent to do searching, she needs to motivate the agent to pay effort as well as to deliver a suitable result. Since different principals have different taste and the suitability of the search result is not entirely determined by the agents’ effort, there is an opportunity for agents to cooperate among themselves and use commission sharing to match search results to pri...