Push or Pull? Performance-Pay, Incentives, and Information

35 Pages Posted: 23 May 2019

See all articles by David Rietzke

David Rietzke

Lancaster University - Department of Economics

Yu Chen

Department of Economics, Indiana University; Nanjing University - School of Economics

Date Written: April 4, 2019

Abstract

We study a principal-agent model wherein the agent is better informed of the prospects of the project, and the project requires both observable and unobservable input. We characterize the optimal contracts, and explore the trade-offs between high and low-powered incentive schemes. We discuss the implications for push and pull programs used to encourage R&D activity, but our results are relevant in other contexts.

Keywords: Pay for Performance, Moral Hazard, Adverse Selection, Observable Action, Principal-Agent Problem

JEL Classification: D82, D86, O31

Suggested Citation

Rietzke, David and Chen, Yu and Chen, Yu, Push or Pull? Performance-Pay, Incentives, and Information (April 4, 2019). Available at SSRN: https://ssrn.com/abstract=3378121 or http://dx.doi.org/10.2139/ssrn.3378121

David Rietzke (Contact Author)

Lancaster University - Department of Economics ( email )

Yu Chen

Nanjing University - School of Economics ( email )

Nanjing, Jiangsu 210093
China
8625-83621970 (Phone)

HOME PAGE: http://nubs.nju.edu.cn/en/index.php

Department of Economics, Indiana University ( email )

United States

HOME PAGE: http://mypage.iu.edu/~chen21/

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