Premium
The economics of wild goose chases
Author(s) -
Prendergast Canice
Publication year - 2015
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12079
Subject(s) - incentive , principal (computer security) , control (management) , microeconomics , economics , business , empirical evidence , public economics , margin (machine learning) , management , computer security , philosophy , epistemology , computer science , machine learning
Empirical evidence consistently finds that incentive pay is more frequent when authority is delegated to workers than when their superiors hold authority. We provide a model where incentive pay results in the abuse of authority by their superiors, and (under reasonable conditions) implies that (i) incentive pay is higher when an agent holds control rights than when her principal has authority, (ii) effort is less responsive on the margin to incentive pay when the principal holds authority, and (iii) more incentive pay can reduce effort under authority, even on tasks that can be easily measured.