Principal–agent models where a principal is only affected by extreme performances

Yigal Gerchak, Christian Schmid

Research output: Contribution to journalArticlepeer-review

Abstract

We consider an independent agents setting, where only the highest or lowest achievement affects the principal. An example of highest achievement scenario is the output of parallel research and development (R&D) teams, when only the highest/best achievement matters. An example of lowest achievement could be an assembly system, where the number of product units that can be assembled equals the lowest number of adequate parts of any component. The findings show that when only extreme performances matter, a principal employs weaker incentives for multiple agents. Furthermore, the reward parameter is especially small if only the lowest achievement is relevant.

Original languageEnglish
Pages (from-to)468-477
Number of pages10
JournalManagerial and Decision Economics
Volume43
Issue number2
DOIs
StatePublished - Mar 2022

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