TY - JOUR
T1 - Dynamic non-monetary incentives
AU - Bird, Daniel
AU - Frug, Alexander
N1 - Publisher Copyright:
© 2019 American Economic Association.
PY - 2019/11/1
Y1 - 2019/11/1
N2 - We study a principal-agent interaction where investments and rewards arrive stochastically over time and are privately observed by the agent. Investments (costly for the agent, beneficial for the principal) can be concealed by the agent. Rewards (beneficial for the agent, costly for the principal) can be forbidden by the principal. We ask how rewards should be used and which investments incentivized. We identify the unique optimal mechanism and analyze the dynamic investment and compensation policies. When all rewards are identical, the unique optimal way to provide incentives is by a "carte blanche" to pursue all rewards arriving in a predetermined time frame.
AB - We study a principal-agent interaction where investments and rewards arrive stochastically over time and are privately observed by the agent. Investments (costly for the agent, beneficial for the principal) can be concealed by the agent. Rewards (beneficial for the agent, costly for the principal) can be forbidden by the principal. We ask how rewards should be used and which investments incentivized. We identify the unique optimal mechanism and analyze the dynamic investment and compensation policies. When all rewards are identical, the unique optimal way to provide incentives is by a "carte blanche" to pursue all rewards arriving in a predetermined time frame.
UR - http://www.scopus.com/inward/record.url?scp=85083116046&partnerID=8YFLogxK
U2 - 10.1257/MIC.20170025
DO - 10.1257/MIC.20170025
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AN - SCOPUS:85083116046
SN - 1945-7669
VL - 11
SP - 111
EP - 150
JO - American Economic Journal: Microeconomics
JF - American Economic Journal: Microeconomics
IS - 4
ER -