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Setting Efficient Incentives for Agricultural Research: Lessons from Principal‐Agent Theory
Author(s) -
Huffman Wallace E.,
Just Richard E.
Publication year - 2000
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/0002-9092.00084
Subject(s) - incentive , reservation , principal (computer security) , principal–agent problem , compensation (psychology) , risk aversion (psychology) , agriculture , organizational theory , applied research , microeconomics , economics , business , industrial organization , management science , computer science , expected utility hypothesis , management , sociology , psychology , mathematical economics , computer network , corporate governance , ecology , social science , psychoanalysis , biology , operating system
A conceptual analysis of important issues in the organization and management of academic research is presented. Principal‐agent theory is applied to derive optimal compensation schemes for scientists when they differ in ability, risk aversion, cost of effort, and reservation utility, and to show the optimal trade‐off between institutional risk and scientists' abilities. Implications for an efficient organization of research are derived, including how scientists' incentives should be structured to elicit optimal research efforts and direction, whether research direction should be centralized or decentralized, and whether the organization of research should be through external competitive grantsor program and institutional funding.