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Push or pull? Performance‐pay, incentives, and information
Author(s) -
Rietzke David,
Chen Yu
Publication year - 2020
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 - 10.1111/1756-2171.12314
Subject(s) - unobservable , incentive , principal (computer security) , microeconomics , principal–agent problem , economics , business , computer science , econometrics , finance , computer security , corporate governance
We study a principal‐agent model wherein the agent is better informed of the prospects of the project, and the project requires both an 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 Research and Development (R&D) activity, but our results are relevant in other contexts.