Allocation of Authority when a Person is not a Robot

We formalize a conception of authority, which is commonly defined as the right of controlling a person’s actions embedded in human assets in sociology. Due to the inalienable property of human assets, the contractible formal authority is hard to verify and enforce, while real authority usually diverges from formal authority. Inefficiency tends to arise when a task is not routine or can not be done by a robot. Using a framework of incomplete contract, we show that allocation of formal authority, as an instrument to mitigate the inefficiency, is determined by features of tasks and specificity of assets, and the relationship between the resources. Monitoring is then introduced to fine tune value of delegation

Gainsharing: A Critical Review and a Future Research Agenda

This paper provides a critical review of the extensive literature on gainsharing. It examines the reasons for the fast growth in these programs in recent years and the major prototypes used in the past. Different theoretical formulations making predictions about the behavioral consequences and conditions mediating the success of these programs are discussed and the supporting empirical evidence is examined. The large number of a theoretical case studies and practitioner reports or gainsharing are also summarized and integrated. The article concludes with a suggested research agenda for the future

Ownership structure and efficiency: An incentive mechanism approach

Corporate Performance;Corporate Ownership

A Note on the Value of Residual Claimancy with Competing Vertical Hierarchies

In this short paper we study a competing vertical hierarchies model where the allocation of residual claimancy is endogenous and is determined jointly with production and contractual decisions. We find a set of circumstances in which the (equilibrium) allocation of residual claimancy is affected by competition in a non trivial manner. More precisely, although revenue-sharing contracts foster agents. (non-contractible) surplus enhancing effort, we show that competing principals dealing with exclusive and privately informed agents might still prefer to retain a share of the surplus from production when dealing with inefficient types. This is because reducing the surplus share of inefficient types reduces the information rent given up to efficient types. Hence, the equilibrium allocation of residual claimancy follows a pro-cyclical rule.Adverse selection, residual claimancy, vertical hierarchies

A framework for the design and analysis of incentive systems for food safety control in supply chains

Since 2005 the EU food industry has primary legal responsibility for food safety control. This requires new responsibilities and relationships between government and industry, and between companies. This research presents a framework for incentive systems for food safety control in supply chains. It emphasizes key elements of food safety control from multiple perspectives and provides insights for the design and analysis of incentive systems for food safety control. An incentive system combines inter-company incentive mechanisms with intra-company decision making processes to control a hazard within the legal environment. Incentive mechanisms, which consist of a performance measure and a performance reward, induce companies to use control measures. The framework can be used to analyze the effectiveness and efficiency of alternative incentive systems in which companies have to cooperate with partners from other stages of the supply chain.Incentive mechanism, food safety, supply chain control., Agricultural and Food Policy,

Optimal Group Incentives with Social Preferences and Self-Selection

In this paper, we analyze group incentives when a proportion of agents feel in- equity aversion as defined by Fehr and Schmidt (1999). We define a separating equilibrium that explains the co-existence of multiple payment schemes in firms. We show that a tournament provides strong incentives to agents who only care about their own payo¤ but that it is not efficient when agents are inequity averse. In fact, inequity averse agents are attracted by a revenue-sharing scheme in which the joint production is equally distributed, under the constraint that selfish agents have no incentive to join the revenue sharing organization. If the market is perfectly flexi- ble, this separating equilibrium induces a high effort level for both types of agents. Pareto gains are achieved by offering organizational choice to agents and the optimal contract is thus to propose both payment schemes to agents and to allow them to self-select into the different payment schemes.Incentives ; performance pay ; revenue sharing ; self-selection ; social preferences ; tournament

The Effective Design of Managerial Incentive Systems:Combining Theoretical Principles and Practical Trade'-offs.

On the use of theoretical developments in agency economics for the practical design of incentive- and performance-based compensation systems.managerial compensation; principal-agent theory; incentive and performance based compensation systems