Controlling a risk-averse,effort-selecting manager in the Soviet incentive model |
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| Institution: | 1. W.P. Carey School of Business, Arizona State University, Tempe, AZ 85287, USA;2. Robert and Maria Lowden Chair of Finance, Neeley School of Business, Texas Christian University, Fort Worth, TX 76129, USA;3. Samuel S. Stewart, Jr. Presidential Chair in Business, David Eccles School of Business, University of Utah, Salt Lake City, UT 84112, USA;4. Neeley School of Business, Texas Christian University, Fort Worth, TX 76129, USA;1. University of Chicago, Booth School of Business, 5807 S. Woodlawn Ave., Chicago, IL 60637, USA;2. National Bureau of Economic Research, USA;3. University of California San Diego, Rady School of Management, 9500 Gilman Dr, La Jolla, CA 92093, USA;1. Fisher School of Business, Ohio State University, 840 Fisher Hall, 2100 Neil Ave, Columbus OH 43210, USA;2. W.P. Carey School of Business, Arizona State University, Tempe, AZ 85287, USA;3. John M. Olin School of Business, Washington University, Campus Box 1133, 1 Brookings Dr, St. Louis, MO 63130, USA;1. UNSW Business School, UNSW Australia, AGSM Building, Gate 11, Botany St, UNSW, Sydney, NSW 2052, Australia;2. School of Business, George Mason University, 4400 University Drive, Fairfax, VA 22030, United States;3. Rutgers Business School, Rutgers University, New Brunswick, NJ, United States;4. Naveen Jindal School of Management, University of Texas at Dallas, 800 West Campbell Road, Richardson, TX 75080, United States;5. Fogelman College of Business and Economics, University of Memphis, 3675 Central Ave, Memphis, TN 38152, United States;1. D''Amore-McKim School of Business, Northeastern University, 360 Huntington Ave., Boston, MA 02115, United States;2. University of Erlangen-Nuremberg, Lange Gasse 20, 90403 Nuremberg, Germany |
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| Abstract: | In this paper we establish the robustness of the comparative static results under managerial risk aversion and discretionary behavior for the Bonin- and Weitzman-type Soviet incentive schemes. Specifically, we show that the self-imposed target (forecasted performance) responds appropriately to changes in the penalty piecerates and that the share parameter can be used to encourage a higher norm and an accompanying higher level of managerial effort. Our results correct an error in the literature on the Bonin-type scheme and impose weaker conditions than previous work on the Weitzman-type scheme. |
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