On the provision of incentives in finance experiments

Monetary incentives are a procedural pillar in experimental economics. By applying four distinct monetary incentive schemes in three experimental finance applications, we investigate the impact of an incentive scheme’s salience on results and elicit subjects’ perception of the experienced scheme. We find (1) no differences in results between salient schemes but a significant impact if the incentive scheme is non-salient. (2) The number of previous participations has a significant impact on the perception of the incentive scheme by subjects: it strongly correlates with subjects’ motives for participation, positively contributes to subjects’ understanding of the incentive scheme, but has no influence on subjects’ motivation within the experiment. (3) Subjects favor more salient over less- or non-salient schemes in the gain domain and negatively evaluate high salience in the loss domain.     

Regulating oligopolistic industries: A generalized incentive scheme

This paper deals with the design of regulatory mechanisms for oligopolistic industries. The proposed incentive scheme consists of two parts: a subsidy depending upon a firm's contribution to an equilibrium price reduction, and a tax equal to the profit of the previous period. This mechanism is as effective in regulating oligopolies as the well-known incremental surplus subsidy scheme in a monopoly framework. The proposed scheme provides appropriate incentives to enforce competitive behavior in a Cournot oligopoly. The scheme is welfare improving even if firms collude.     

Local public goods, inter-regional transfers and private information

Suppose that the centre wishes to make transfers between member states of a federation to reduce inequality. However, it lacks precise information concerning the cost differences that are responsible for the initial income inequality. We examine the implications of asymmetric information for the design of the transfer scheme. We show that if member states’ inherent cost levels as local public good providers take discrete values, the first best, or ‘complete information’, transfer scheme may or may not violate incentive compatibility. If inherent cost is a continuous random variable, such a scheme certainly violates incentive compatibility. We also explore the possibility of binding participation constraints. In our model, a binding incentive compatibility constraint leads to a reduction in effort devoted to cost reduction, and a binding participation constraint will also lead to a violation of Samuelson's optimality condition for public good provision.     

Robustness of simple menus of contracts in cost-based procurement

We consider a model of cost-based procurement in which the principal faces Knightian uncertainty about the agent's preferences for cost reduction. We show that a particularly simple incentive scheme—a menu comprising a fixed-price contract and a cost-reimbursement contract—minimizes the maximum expected payment, where this maximum is taken over the set of possible agent preferences. For some parameters of the problem, a range of alternative incentive schemes also satisfy this criterion. We show that the simple incentive scheme is not weakly dominated by any of the alternatives: there does not exist an alternative mechanism for which the expected payment is no higher for all realizations of the agent's preferences and strictly lower for some realization.     

A theory of firm decline

We study the problem of an investor that buys an equity stake in an entrepreneurial venture, under the assumption that the former cannot monitor the latter's operations. The dynamics implied by the optimal incentive scheme is rich and quite different from that induced by other models of repeated moral hazard. In particular, our framework generates a rationale for firm decline. As young firms accumulate capital, the claims of both investor (outside equity) and entrepreneur (inside equity) increase. At some juncture, however, even as the latter continues to grow, invested capital and firm value start declining and so does the value of outside equity. The reason is that incentive provision is costlier the wealthier the entrepreneur (the greater is inside equity). In turn, this leads to a decline in the constrained-efficient level of effort and therefore to a drop in the return to investment.     

农民工、社会网络和劳动合同形式——一个案例研究

当前中国出现了所谓的"民工荒",这意味着劳动力供需状况即将迎来一个转折点,这一转变会带来多重后果。本文通过一个案例研究,提出如下可供实证检验的命题:随着农村剩余劳动力供给的减少,企业会改变其用工制度,原先的激励强度较低的劳动合同形式会让位于激励强度较高的劳动合同形式,这会诱使工人付出更多的努力,在一定程度上还可以缓解企业由于工资上升而带来的成本压力;此外,随着农村经济社会的发展,社会资本的作用不仅在减弱,而且自身内容和作用方式也会发生变化。     

An optimal tax/subsidy for output and pollution control under asymmetric information in oligopoly markets

This paper constructs an optimal incentive tax/subsidy scheme in an oligopoly market with pollution, as a generalization of the Loeb-Magat scheme, which is nondiscriminatory and requires less information for implementation than the conventional ones. Some interesting properties of the scheme are discussed.     

An optimal incentive scheme for planning with targets

In socialist economies incentive schemes that contain targets are useful to planners since planners must allocate output to various users. We use a principal-agent model to show that under certain circumstances a first-best Pareto-optimal incentive scheme containing a target exists.     

知识型员工薪酬激励方案的优化——以某国有工程咨询设计公司为例

知识型员工是现代企业中一个个性鲜明的工作群体,如何有效地激励管理他们,特别是薪酬体系设计问题成为当代人力资源管理的新课题,也是企业特别是科技型企业构建核心竞争力的关键。案例企业对知识型员工的薪酬激励尚存在着薪酬结构不合理、缺乏对内公平性和对外竞争性等诸多问题,优化设计的方案是以岗位绩效工资为基础的主体薪酬体系和其他辅助激励形式并存的综合激励方案。     

Base Salaries,Bonus Payments,and Work Absence among Managers in a German Company

This paper provides scarce insider econometric evidence on the structure of management compensation and on the incentive effects of fixed base salaries and bonus payments. Six years of personnel data of 177 managers in a German company are analyzed with special emphasis on the highest achievable bonuses under a Management‐by‐Objectives (MBO) incentive scheme. The main finding of panel negative binomial regressions is that higher achievable bonus payments are correlated with fewer absent working days, which supports the incentive effect of performance pay for managers. The fixed base salary component is, however, not significantly correlated with managers’ work absence.     

Pension Schemes and Incentives: Case Studies from Australia and the United Kingdom

The use of selective benefits, directed to those considered most in need, has a high 'poverty reduction efficiency'. But selectivity inevitably produces non-linearities in the budget constraints facing individuals, which may have incentive effects. The design of a tax and transfer scheme requires these two aspects to be carefully balanced. This article considers the issues in the context of means-testing within the Australian and UK State pension schemes. In the Australian case, the main question concerns the incentive to save, while in the UK scheme the 'earnings rule' presents a strong disincentive to work beyond pension age.     

Price Effects of Target Ratcheting: A Progress Report on Medical Devices

Regulators, who have asymmetric information concerning the technology of regulated firms, often rely on incentive‐based regulation. While such a scheme is well known to be vulnerable to the adverse incentives of regulated firms, empirical research that quantifies the magnitude of distortion caused by incentive regulation is scarce. This paper is a progress report of our recent project on target ratcheting with an application to medical devices in Japan. A casual observation of detailed product‐level transaction data and reduced‐form analyses indicate the existence of pricing distortion in the wholesale market. The paper also proposes a two‐period bilateral bargaining model to match the data. A preliminary analysis finds evidence consistent with the hypothesis that target ratcheting distorts the pricing of regulated firms, but the magnitude of the distortion is estimated to be economically small.     

企业技术创新的剩余索取权激励研究:以电子信息产业为例

企业生产活动激励的核心问题是剩余索取权分配,激励技术创新这种独特生产活动的核心问题是安排特殊的剩余索取权分配机制。研究表明,技术创新型企业的有效剩余索取权安排是包括股东、技术创新者和经营者的三元激励方式,能有效促进技术创新者和经营者努力程度和剩余贡献。     

长期视角下股权激励的动态效应研究

基于长期研究视角,本文在考察股权激励对企业绩效动态影响的基础上,检验了产权性质、授予动机和实施频率对这一关系的影响。结果显示：股权激励存在动态激励效应。不仅在实施当期具有即期影响,在实施后的五年还表现出持续性的激励效果,且在时间分布上呈现出先升后降的“倒U型”特征。相较于民营企业,国有企业实施股权激励后的绩效提升作用较弱,持续期较短,且在实施初期没有即刻显现出激励效应,而是经历了一个为期两年的滞后期。相较于绩效提升作用更强、更持久的激励型契约,福利型合约仅在短期内存在激励效果,并在实施后第四年出现业绩反转,显现出负效应。相对于只实施了一期的公司,股权激励对连续实施多期激励计划公司的激励效果更好,不仅绩效提升作用更强,激励效应也更持久、稳定。     

COST‐SAVING PRODUCTION TECHNOLOGIES AND STRATEGIC DELEGATION*

This work analyses a managerial delegation model in which firms choose between two production technologies: a low marginal cost technology and a high marginal cost technology. For the former to be adopted more investment is needed than for the later. By giving managers of firms an incentive scheme based on a linear combination of profit and sales revenue, we find that Bertrand competition provides a stronger incentive to adopt the cost‐saving technology than the strict profit maximisation case. However, the results may be reversed under Cournot competition. If the degree of product substitutability is sufficiently low (high), the incentive to adopt the cost‐saving technology is larger under strict profit maximisation (strategic delegation).     

The Ratchet: A dynamic managerial incentive model of the soviet enterprise

The impact of the ratchet on the level of output that maximizes the present value of the managerial bonus stream is investigated. Using the orthodox USSR incentive scheme, results indicate that the ratchet does not always cause managers to select an output level that is less than the enterprise's full capacity. Nonetheless, the ratchet typically requires maximizing behavior that prevents production at capacity. The results reported for only two periods apply to longer horizons.     

Group rewards and individual sanctions in environmental policy

We examine an incentive scheme for a group of agents, where all agents are rewarded if the group meets its target. If the group does not meet its target, only the agents that meet their individual target are rewarded. This incentive scheme is applied in the UK Climate Change Agreements. There is only a difference in outcome between group and individual rewards if performance is stochastic. Group rewards lead to lower abatement than individual rewards if targets are realistic, i.e. if they have a high probability of being reached. Given the strictness of the targets, the agents prefer group rewards. The principal might want to use group rewards because they require less information, out of fairness concerns, or to combine strict targets with weak enforcement.     

Incentives and efficiency in the kosygin reforms

Some of the efficiency implications of an incentive scheme for enterprises under which bonuses depend on sales and the rate of profit (one of the major schemes introduced by the 1965 Kosygin industrial reforms in the USSR) are explored. Various efficiency problems are identified, and the use of the scheme to induce effort and raise productivity is analyzed.     

Limitations on the use of information-revealing incentive schemes in economic organizations

Hierarchical organizations often use formal information channels to facilitate communication between center and subordinate units. Unfortunately subgoal pursuit may lead subordinates to be dishonest when responding to information requests. One way to overcome this problem is to design incentive schemes that encourage honesty. While incentive schemes that successfully encourage accurate information revelation exist for certain environments, this will not always be the case. In particular, if managerial effort is considered or if the center's objective is defined net of bonuses there may not exist any incentive scheme leading simultaneously to honest reporting and to maximization of the center's objective function.     

Encouraging Tutorial Attendance at University Did Not Improve Performance

When tertiary education is subsidised the cost of poor student performance in university subjects falls not only on the individual student but also on society in general. Society therefore has an interest in promoting student performance. There is evidence in the literature that absenteeism from university classes is widespread and that absenteeism adversely affects student performance. In this paper I describe an incentive scheme that increased attendance of business and economics students in an introductory statistics subject at a typical Australian university. Like other authors I find a strong positive association between attendance and academic performance, both in the presence and absence of the scheme. However, there is no evidence that the incentive scheme caused student performance to improve. Although students attended more classes they did not perform better than students in the previous year's class who had the same observable characteristics and attendance levels but who were not exposed to the scheme.