Dynamic non-monetary incentives

Daniel Bird, Alexander Frug

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

Abstract

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.

Original languageEnglish
Pages (from-to)111-150
Number of pages40
JournalAmerican Economic Journal: Microeconomics
Volume11
Issue number4
DOIs
StatePublished - 1 Nov 2019

Funding

FundersFunder number
Spanish Ministry of Economy and CompetitivenessECO2014-56154-P, SEV-2011-0075

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