How to Restore Higher-Powered Incentives in Multitask Agencies

Posted: 2 Jun 1999

See all articles by Bernard Sinclair-Desgagne

Bernard Sinclair-Desgagne

SKEMA Business School - Sophia Antipolis Campus

Abstract

In multiple-task agency setups, it is commonly accepted that wage incentives must be weaker when the agent's performance on some of the activities is difficult to measure. This paper shows that stronger incentives can be restored through a scheme of selective audits, in which the appraisal of less tangible activities is contingent on observing high performance levels in the more visible tasks. This scheme would make the efforts expended on the various tasks complementary rather than substitutes in the agent's utility function. It is optimal under plausible assumptions concerning the monitoring technology (separability of the multivarviable likelihood function) and the agent's risk behavior (absolute prudence larger than three times absolute risk aversion).

JEL Classification: D81, D82

Suggested Citation

Sinclair-Desgagne, Bernard, How to Restore Higher-Powered Incentives in Multitask Agencies. Journal of Law, Economics, and Organization, Vol. 15, No. 2 Summer, 1999. Available at SSRN: https://ssrn.com/abstract=162815

Bernard Sinclair-Desgagne (Contact Author)

SKEMA Business School - Sophia Antipolis Campus ( email )

60 rue Dostoïevski
Sophia Antipolis, 06902
France

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