Performance incentives and planning under uncertainty

The paper discusses the use of the performance-incentive function (PIF) by planning organizations when there is subjective or objective uncertainty. It is proved that a PIF can be constructed that achieves both allocational and distributional optimality, when there is subjective uncertainty about the conditions of production and both the center and the producer are risk-averse. When there is objective uncertainty, however, it is shown that it is not, in general, possible for the center to achieve these two objectives simultaneously. J. Comp. Econ., Sept. 1979, 3(3), pp. 217–232. United States Air Force Academy, Colorado 80840; and University of California, Berkeley, California 94720.