Success and Payoff Reversals in Dynamic Agency Relationships

28 Pages Posted: 20 Dec 2021 Last revised: 24 Jan 2023

See all articles by Tom Rauber

Tom Rauber

University of Kaiserslautern

Date Written: December 17, 2021

Abstract

This paper explores the effects of incentives in a simple dynamic model, where a set of rational agents works on a joint task. We reveal that higher incentives may not only discourage agents' effort provision in earlier periods, but they can also lower the task's success rate and reduce agents' payoffs. These success and payoff reversals arise naturally once agents interact dynamically, i.e., in more than one period. Our novel insights contribute to explaining the prevalent empirical phenomenon of project delays and failures.

Keywords: Agency Model; Incentives; Success Reversals; Payoff Reversals

JEL Classification: C73, D82, D90, J30, M52

Suggested Citation

Rauber, Tom, Success and Payoff Reversals in Dynamic Agency Relationships (December 17, 2021). Available at SSRN: https://ssrn.com/abstract=3987829 or http://dx.doi.org/10.2139/ssrn.3987829

Tom Rauber (Contact Author)

University of Kaiserslautern ( email )

Paul-Ehrlich-Stra├če 14
Kaiserslautern, D-67663
Germany
+49 (631) 205 4806 (Phone)

HOME PAGE: http://https://vwl-mikro.wiwi.uni-kl.de/team/tom-rauber

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