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Author: Chang-Koo Chi Publisher: ISBN: Category : Languages : en Pages : 35
Book Description
This paper analyzes relational contracts under moral hazard. We first show that if the available information (signal) about effort satisfies a generalized monotone likelihood ratio property, then irrespective of whether the first-order approach (FOA) is valid or not, the optimal bonus scheme takes a simple form. The scheme rewards the agent a fixed bonus if his performance index xceeds a threshold, like the FOA contract of Levin (2003), but the threshold can be set differently. We next derive a sufficient and necessary condition for non-verifiable information to improve a relational contract. Our new informativeness criterion sheds light on the nature of an ideal performance measure in relational contracting.
Author: Chang-Koo Chi Publisher: ISBN: Category : Languages : en Pages : 35
Book Description
This paper analyzes relational contracts under moral hazard. We first show that if the available information (signal) about effort satisfies a generalized monotone likelihood ratio property, then irrespective of whether the first-order approach (FOA) is valid or not, the optimal bonus scheme takes a simple form. The scheme rewards the agent a fixed bonus if his performance index xceeds a threshold, like the FOA contract of Levin (2003), but the threshold can be set differently. We next derive a sufficient and necessary condition for non-verifiable information to improve a relational contract. Our new informativeness criterion sheds light on the nature of an ideal performance measure in relational contracting.
Author: Michael Raith Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
In many occupations, the consequences of agents' actions become known only over time. Firms can then pay agents based on early but noisy performance measures, or later but more accurate ones. I study this choice within a two-period model in which an agent's action generates an output with delay, and a noisy signal of output early. While the signal is useful for early consumption decisions, it is not clear that the signal is useful for incentive contracting if the agent has access to credit. I show, however, that under very general conditions the optimal contract depends on the early signal as well as on output even if the signal is uninformative of effort, given output, and even if the agent has perfect access to credit. An important characteristic of any performance measure, therefore, is the time at which it is generated. The results shed light on the use of forward-looking performance measures such as stock returns in managerial incentive contracts.
Author: Sara Bormann Publisher: ISBN: Category : Languages : en Pages : 51
Book Description
This paper examines a potential problem associated with the use of subjectivity in incentive contracts: Relational contracting clarity. Clarity refers to the extent to which the terms of a relational contract, or subjective assessment can be communicated and an employee and his superior are able to build a shared understanding on which behavior is desirable and how it translates into rewards (Gibbons and Henderson 2012a, 2012b). If the terms of a subjective assessment are difficult to communicate, contracting clarity and hence the incentive effect of subjectivity diminish. Accordingly, firms should reduce their reliance on subjectivity. It has been argued that this is the case in complex and multidimensional settings, which arise, for instance, when firms pursue a joint strategy (i.e. follow a differentiation and a low- cost strategy simultaneously). Following a joint strategy has been associated with increased complexity and multidimensionality in the decision making process due to potentially conflicting strategic goals (Dekker et al. 2013; Lillis 2002; Lillis and van Veen-Dirks 2008). My results based on the analysis of survey data of 153 firms are consistent with my expectations. That is, pursuing a joint strategy is associated with a reduced use of subjectivity. However, this relation is not prevalent for all forms of subjectivity. In particular, following a joint strategy is associated with a reduced reliance on subjective formulas, while there is no relation to the use of subjective performance measures.
Author: Ryan Garrett Doss Publisher: ISBN: Category : Languages : en Pages : 127
Book Description
This thesis focuses on the creation of a high-performance service operations organization. As organizations increasingly compete on service quality, increased attention has been given to measuring, tracking, and improving customer satisfaction. This thesis 1) provides a novel framework for service quality improvement and 2) explores concepts in game theory, relational contracts, and incentive mechanism design that impact service quality in the modern organization. The framework introduced in this thesis is comprised of four distinct steps. In the first step, service quality is quantitatively measured and drivers of service quality are determined both through qualitative methods and through statistical analysis on a customer-by- customer basis. In the second step, key drivers of service quality are addressed through process redesign and operational improvement. In the third step, the alignment of service operations incentive mechanisms with employee behavior consistent with high service quality is analyzed and considered in the context of building a high-performance service organization. Finally, the role of organizational learning and the relational contracts that may help to sustain a culture of experimentation, learning, and improvement are considered. These concepts are applied to a host organization, Atlantic Energy, by way of case study throughout this thesis; this acts to provide a concrete example of the application of these concepts and shows an example of the effectiveness of the framework when compared to traditional methods in service operations improvement.
Author: Jan Bouwens Publisher: ISBN: Category : Languages : en Pages :
Book Description
Using data from a third-party survey on compensation practices at 151 Dutch firms, we show that less noisy or distorted performance measures and higher cash bonuses are associated with better-directed effort and improved employee selection. Specifically, 1) an increase in the cash bonus increases the selection effects of incentive contracts, but does not independently affect the effort that employees deliver, and 2) performance measure properties directly impact both effort and the selection functioning of incentive contracts. These results hold after controlling for an array of incentive contract design characteristics and for differences in organizational context. Our estimation procedures address several known problems with using secondary datasets.
Author: Gregory Sanders Publisher: Rowman & Littlefield ISBN: 1442280662 Category : Political Science Languages : en Pages : 74
Book Description
Traditional contracting is primarily transactional, rewarding contractors when deliveries are made or certain process milestones are met. Performance-Based Logistic (PBL) contracting seeks to base contractor incentives on ongoing performance measures to achieve reliability and cost savings. Key to the success of these arrangements are the incentives that align the interests of the customer and the vendor. This report describes the incentives used in PBL contracts, identifies best practices, and provides recommendations for effective incentives going forward. The study team interviewed PBL practitioners including defense-unique contractors, defense-commercial contractors, and experts who are knowledgeable in the government perspective in the United States and abroad. The team supplemented these interviews by analyzing a PBL dataset of U.S. Department of Defense contracts. Of the four identified categories of incentives—time-based, financial, scope, and other—interviews found that time-based incentives stood out for their reliable appeal and relative underuse in the United States.
Author: Chang-Koo Chi
Author: Chang-Koo Chi
Author: George P. Baker
Author: George Pierce Baker
Author: Jonathan David Levin
Author: Michael Raith
Author: Sara Bormann
Author: Ryan Garrett Doss
Author: George Baker
Author: Jan Bouwens
Author: Gregory Sanders