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In a contest in which solvers with heterogeneous expertise exert effort to develop solutions, a recent paper [Terwiesch C, Xu Y (2008) Innovation contests, open innovation, and multiagent problem solving. Management Sci. 54(9):1529-1543] argues that as more solvers enter the contest, every solver will reduce effort due to a lower probability of winning the contest. This paper corrects mistakes in this theory, and shows that there exist high-expertise solvers who may raise their effort in response to increased competition. This is because more entrants raise the expected best performance among other solvers, creating positive incentives for solvers to exert higher effort to win the contest. Because of this positive effect, we find that a free-entry open contest is more likely to be optimal to a contest organizer than what Terwiesch and Xu (2008) and other prior literature asserted. History: Accepted by Gad Allon, operations management. Funding: This work was partially supported by the Carnegie Bosch Research Grant, Carnegie Mellon University. Supplemental Material: The e-companion is available at https://doi.org/10.1287/mnsc.2017.2738. Keywords: contract * crowdsourcing * incentive * tournament, 1. Introduction Today, many companies use contests (also called tournaments) as a mechanism for R&D (research and development) outsourcing. A contest is a mechanism wherein a seeker poses a problem [...]

This paper analyzes the substantially growing markets for crowdfunding, in which retail investors lend to borrowers without financial intermediaries. Critics suggest that these markets allow sophisticated investors to take advantage of unsophisticated investors. The growth and viability of these markets critically depend on the underlying incentives. We provide evidence of perverse incentives in crowdfunding that are not fully recognized by the market. In particular, we look at group leader bids in the presence of origination fees and find that these bids are (wrongly) perceived as a signal of good loan quality, resulting in lower interest rates. Yet these loans actually have higher default rates. These adverse incentives are overcome only with sufficient skin in the game and when there are no origination fees. The results from the analysis in this paper provide more general implications for crowdfunding, its structure, and its regulation. History: Accepted by Wei Jiang, finance. Keywords: finance * financial institutions * banks * markets * economics * microeconomic behavior, 1. Introduction Markets for crowdfunding, barely known to a broader public until recently, have rapidly and significantly grown into a multibillion-dollar industry worldwide, covering loan markets as well as other [...]

This paper investigates how self-optimizing engineers affect new product development (NPD) project outcomes and development times. A variety of widely used NPD project management approaches, including heavyweight project management, may allow or even encourage engineers to introduce late design changes and exhibit weak cost compliance, reducing the product's profit or competitiveness. Providing specifically designed incentives for individuals can eliminate such encouragement, and thus improve cost compliance and project timeliness. This paper discusses several practical incentive schemes, including profit-sharing contracts and component-level target costing. For many industrial projects, component-level target costing makes the most efficient use of available information to optimize project outcomes and reduce development times. Key words: R&D management; new product development; incentives; target costing History: Received July 27, 2007; accepted February 15, 2010, by Kamalini Ramdas, entrepreneurship and innovation. Published online in Articles in Advance June 9, 2010., 1. Introduction The research question of this paper was inspired by firsthand observations in a new car development project. The product manager of a large automotive manufacturer, who was responsible [...]

A study was conducted to model endogenous social norms by assuming that an agent's cost of implementing an action depends on the social norm for that action. Studies in sociology and ethics show that individuals adhere to social norms of behavior established by their peers. Findings demonstrate how endogenous social norms alter the effectiveness of monetary incentives.

To review research evidence on the effectiveness of monetary incentives in modifying dietary behavior, we conducted a systematic review of randomized, controlled trials (RCTs) identified from electronic bibliographic databases and reference lists of retrieved relevant articles. Studies eligible for inclusion met the following criteria: RCT comparing a form of monetary incentive with a comparative intervention or control; incentives were a central component of the study intervention and their effect was able to be disaggregated from other intervention components; study participants were community-based; and outcome variables included anthropometric or dietary assessment measures. Data were extracted on study populations, setting, interventions, outcome variables, trial duration, and follow-up. Appraisal of trial methodological quality was undertaken based on comparability of baseline characteristics, randomization method, allocation concealment, blinding, follow-up, and use of intention-to-treat analysis. Four RCTs were identified as meeting the inclusion criteria. All four trials demonstrated a positive effect of monetary incentives on food purchases, food consumption, or weight loss. However, the trials had some methodological limitations including small sample sizes and short durations. In addition, no studies to date have assessed effects according to socioeconomic or ethnic group or measured the cost-effectiveness of such schemes. Monetary incentives are a promising strategy to modify dietary behavior, but more research is needed to address the gaps in evidence. In particular, larger, long-term RCTs are needed with population groups at high risk of nutrition-related diseases. Key words: diet, incentives, intervention doi: 10.1301/nr.2006.dec.518-531

A study on principal-agent information with relation to organizational inertia using dynamic incentives is presented.

Should a donor delegate the responsibility for allocating its aid budget to a less inequality-averse agent to alleviate the consequences of the Samaritan's Dilemma it is facing? I show that when aid impact differs across recipients the optimal type of agent depends on whether or not committing to a greater share for countries where the productivity of aid is low raises the combined domestic incomes of recipients. This is the case for donors too concerned with efficiency ex post. They therefore delegate the decision on the discretionary aid allocation rule to agents more sensitive to distributional issues than themselves. JEL classification: F35; O11 Keywords: Foreign aid; Incentives; Strategic delegation

The classic moral hazard model studies the problem of how a principal should provide incentives to an agent who operates a project for him. In this model, the principal only [...]

This paper studies the effect of knowledge diffusion on the incentives for developed countries' (DC) firms to undertake costly technology transfer to their less developed countries' (LDC) suppliers whose cost of production varies inversely with their technological effort. When the incumbent supplier's cost of improving efficiency is high, diffusion of knowledge to other potential input producers encourages technology transfer, as it increases upstream competition. However, and in sharp contrast to existing literature, when technological effort is less costly, knowledge diffusion discourages technology transfer by reducing the incumbent supplier's technological effort. Keywords: Technology transfer; Technological effort; Developing countries; Knowledge diffusion: Buyer-supplier JEL classification. F23; L13; O14; O19; O32; O33

Using a specific coupled incentive scheme, a study on how technology change can be realized and in which individual economic agents are rewarded for their joint actions' effect rather than for their own actions' accomplishments. The technology transition is assumed to be environmental friendly.

This paper reviews the significant progress in 'agency theory' (i.e., the economic theory of incentives) during the 1990s, with an eye toward applications to supply transactions. I emphasize six recent models, in three pairs: (1) new foundations for the theory of incentive contracts, (2) new directions in incentive theory, and (3) new applications to supply transactions. By reviewing these six models, I hope to establish three things. First, the theory of incentive contracts needed and received new foundations. Second, new directions in incentive theory teach us that incentive contracts are not the only source of incentives. Finally (and especially relevant to supply transactions), the integration decision is an instrument in the incentive problem. Key words: incentives; agency theory; relational contracts; supply transactions, 1. Introduction This paper reviews the significant progress in 'agency theory' (i.e., the economic theory of incentives) during the 1990s, with an eye toward applications to supply transactions. It begins [...]

The author derives effects of incentive-efficient allocations using linear programming.

We investigate incentives through environmental policy instruments to adopt advanced abatement technology. First, we study the case where the regulator makes long-term commitments to policy levels and does not anticipate arrival of new technology. We show that taxes provide stronger incentives than permits, auctioned and free permits offer identical incentives, and standards may give stronger incentives than permits. Second, we investigate scenarios where the regulator anticipates new technologies. We show that with taxes and permits the regulator can induce first-best outcomes if he moves after firms have invested, whereas this does not always hold if he moves first. JEL classification: L5; Q2; Q28 Keywords: Emission taxes; Auctioned permits; Grandfathering; Emission standards; Technology adoption

This paper shows the importance of the age path (life-cycle timing) of any tax for the accumulation of capital in the economy. Income, consumption, and wage taxes differ in their age paths as well as their incentive effects. This paper studies how the differing age path of each tax affects the capital accumulation of the economy in an empirically calibrated life-cycle model. We investigate lump-sum 'age' taxes and find in every case that the later the person pays tax, the higher the k of the economy. To analyze the life-cycle timing effect of conventional transactions-based taxes (income, consumption, and wage), we replace each tax with a lump-sum age tax that has the identical age path of tax payments over the life cycle. We find that the timing effect is quantitatively important and often causes the impact of a tax on capital accumulation to be very different from what would be predicted from the incentive effect., 1. Introduction The age path (life-cycle timing) of a tax is an important yet often overlooked property of the tax because it affects the capital accumulation of the economy. By [...]

The linkage between pay dispersion and workplace performance is researched. Research results indicate that workplace performance will be improved when a pay dispersion model is backed-up by a formal incentive policy.

Do multidivisional firms structure compensation contracts for division managers to mitigate incentive problems in their internal capital markets? I find evidence that compensation and investment incentives are substitutes: firms providing a stronger link to firm performance in incentive compensation for division managers also provide weaker investment incentives through the capital budgeting process. Specifically, as the proportion of incentive pay for division managers that is based on firm performance increases, division investment is less responsive to division profitability. These findings are generally consistent with a model of influence activities by division managers in interdivisional capital allocation decisions.

Increasingly, business clients are actively leading information systems (IS) projects, often in collaboration with IS professionals, and they are exercising a greater degree of project control. Control is defined as all attempts to motivate individuals to achieve desired objectives, and it can be exercised via formal and informal modes. Much of the previous research investigating the choice of control mode has focused on direct reporting relationships between IS project leaders and their superiors in a hierarchical setting. However, the client-IS relationships may take on a variety of forms, including both hierarchical and lateral settings. Moreover, prior research has found that the knowledge of the systems development process is a key antecedent of control, yet clients are unlikely to be as knowledgeable as IS professionals about this process. It is therefore unclear whether prior findings will generalize to the client-IS pair, and the goal of this research is to examine the exercise of control across this relationship. Data were gathered from a questionnaire survey of 69 pairs of clients and IS project leaders. The results are largely consistent with prior research on the antecedents of formal control modes, but they shed new insight on the choice of informal control modes., Introduction The successful management of information systems (IS) projects continues to challenge IS professionals (McFarlan 1981, Guinan et al. 1998). Traditionally, the participation and involvement of business users in IS [...]

A two-period, career-concerns model with symmetric information but uncertainty about each worker's ability is analyzed. Contracts are unobservable, but incomes are observable. It is shown that effort is distorted upward by contracts being unobservable and that the distortion depends positively on turnover.

Abstract: In their 1992 textbook, Economics, Organization and Management, Milgrom and Roberts used 19th century fur trading companies as examples of effective (the incentive-based North West Company) and ineffective (the [...]

Abstract: This paper investigates the composition of remuneration packages for middle managers and relates the structure of remuneration contracts to firm-specific attributes. A statutorily defined position in a single industry [...]

Telecommunications law intended to offer local area exchanges incentives to improve their efficiency did not produce the desired improvement, according to a study. Analysis by both data envelopment and stochastic methods gave the same results.

In February 1995 Continental Airlines introduced an incentive scheme that promised monthly bonuses to all 35,000 hourly employees if the company achieved a firm-wide performance goal. Conventional wisdom suggests that free riding will render such schemes ineffective. We present evidence indicating that the incentive scheme raised employee performance despite the apparent threat of free riding. To explain why the scheme may have been effective we argue that the organization of employees into autonomous work groups enabled Continental to induce mutual monitoring among employees within each work group.

Studies in three thematic lines of research have manipulated parameters of individual monetary incentive systems to determine whether those parameters were functionally related to performance. Studies have examined: (a) the size of the percentage of total pay and base pay earned in incentive pay; (b) various ratio schedules of monetary reinforcement; and (c) linear, accelerating, and decelerating piece rate pay. The review revealed that individual monetary incentives plus feedback improved performance in comparison to hourly pay plus feedback in studies in all three thematic research lines. However, performance levels were not functionally related to (a) the size of the percentage of total pay or base pay earned in incentive pay for percentages that ranged from 3% to 100% of a person's total pay and base pay; (b) the per piece incentive amount; (c) the amount earned in total pay or total incentive pay; (d) the ratio schedule of delivery for CRF, FR3, VR2, VR3, and VR4 schedules; or (e) linear, accelerating, or decelerating piece rate pay. Taken together, the data suggest that, at least for the parameters investigated to date, the most critical determinant of performance is the ratio schedule contingency between performance and pay; that is, a relationship in which individuals earn a specified amount of money for the number of work units they complete. They also suggest that once a ratio relationship exists, variations in the parameters of individual monetary incentive systems may not greatly affect performance. Relatively few studies, however, have been conducted and further research is required. KEYWORDS. Individual monetary incentives, literature review, performance-based monetary incentives, proportion of monetary incentive pay to wage-based pay

The author agrees with Michael Beesley that airport fees should not be based on price caps, but rather that the incentives, complementary demands, and rents inherent in airport operations lead to increased output.

Ineffective incentive programs can misdirect the efforts of salespeople in many firms and their efforts can sometimes be at variance with organizational goals. Issues concerning the pitfalls associated with award and compensation programs are discussed.

Byline: R. Mark Isaac (1), Duncan James (2) Keywords: combinatorial; auctions; Vickrey; experiments Abstract: Goods are said to be combinatorial when the value of a bundle of goods is not equal to the sum of the values of the same goods unbundled. Investigations of combinatorial allocation problems should recognize that there are two separate aspects of such problems: an environmental distinction between multiple-unit allocation problems which involve combinatorial goods and those which do not do so, and an institutional distinction between auctions in which combinatorial values can be expressed as part of the bidding rules and those in which they cannot. Forsythe and Isaac (Research in Experimental Economics, Vol. 2 (1982). Greenwich, Conn.: JAI Press, Inc.) reports the extension of the Vickrey auction into a demand-revealing, multiple unit, private goods auction that can incorporate combinatorial values. This current paper places that theoretically demand-revealing institution in a series of experimental environments in order to generate results (e.g. efficiencies) which may serve as a benchmark for other auctions (combinatorial or otherwise) whose implementation characteristics may be more favorable. To aid in interpretation of our Vickrey experimental results, we also provide results of alternatives to Vickrey allocations from both institutional and heuristic sources, as well as a discussion of the source of the Vickrey auctions high efficiencies even in the presence of misrevelation. Author Affiliation: (1) Department of Economics/Tocson, University of Arizona, AZ, 85721, USA (2) Department of Economics/Bronx, Fordham University, NY, 10458, USA Article History: Registration Date: 15/10/2004

Long-term incentive schemes are widely used to motivate executives to improve financial performance, thereby aligning the executives' interests more closely with those of the organization's shareholders. A study of the option/long-term incentive plans (LTIP) performance criteria used by 150 UK companies is presented.

Hedge funds display several interesting characteristics that may influence performance, including: flexible investment strategies, strong managerial incentives, substantial managerial investment, sophisticated investors, and limited government oversight. Using a large sample of hedge fund data from 1988-1995, we find that hedge funds consistently outperform mutual funds, but not standard market indices. Hedge funds, however, are more volatile than both mutual funds and market indices. Incentive fees explain some of the higher performance, but not the increased total risk. The impact of six data-conditioning biases is explored. We find evidence that positive and negative survival-related biases offset each other. (Reprinted by permission of the publisher.)

An investigation of ethical decision making in a negotiation context revealed that focal actors' incentives influenced not only their misrepresentation, but also their expectations of their opponents' misrepresentation, suggesting that individuals hold 'motivated expectations' about their opponents. The notion that individuals engage in defensive ethics received only modest support. The incentives of opponents influenced expectations about their misrepresentation but did not impact the focal actors' misrepresentation; however, correlational data revealed a significant relationship between the opponents' temptation and the focal actors' misrepresentation. Furthermore, temptation mediated the proposed relationships, suggesting that it may serve as an individual factor filtering the situational influence of incentives. (Reprinted by permission of the publisher.)

A study was conducted to analyze the relationship between general control (GC) and specific control (SC) for multitask principal-agent problems by characterizing two sets of multitask problems for which GC and SC are equivalent. The first multitask problem was depicted by homogeneous tasks while the second problem supported activities that can be substituted in the agent's cost function. The study also characterized conventional conditions associated with equivalence and implications when GC and SC differ. Results indicated an equivalence of SC and GC under a certain range of multitask problems. Findings also showed that problems supporting technologically dependent tasks permit the principle to determine the same expected profits associated with GC.

This paper investigates incentives design problems where the leader lacks precise knowledge on a certain parameter, which describes the problem situation, but the leader can collect information from the follower. We first illustrate that the follower may misrepresent information when the leader's strategy depends on information provided by the follower. To deal with incentives design problems in such a situation, two ideas are proposed. One idea suggests using a misrepresentation-proof optimal incentive strategy (MOIS), which can induce the follower to report true information and simultaneously to take actions in favor of the leader's interest; while the other idea suggests imposing threat to enforce the follower to reveal truth through using a mixed investigation strategy. Furthermore, in the first case we get two kinds of existence conditions of MOIS and two constructing methods for it, while in the second case we examine the mixed investigation strategies which can prevent the follower from misrepresentation, and then evaluate them from the leader's interests. Index Terms - Incentive strategy, incentives design, misrepresentation-proofness, parametric uncertainty.

Studies on how manufacturers can offer incentives to a separately-owned retailer to enhance service levels are presented. Findings suggest that the maximum level of incentive for the manufacturer and the resulting shares of the manufacturer and retailer in increased profits are especially perceptive to the basic changeability of demand. Morover, results convey that significant savings could be gained from boosting retail service levels in circumstances wherein demand is perceptive to the service level, and demand changeability is considerable.

Byline: Matthew L. Miller (1), Richard W. Malott (2) Keywords: programmed instruction; overt responding; incentives; computer-based instruction; university education Abstract: Among the fundamental tenets of programmed instruction is the requirement of overt responding. Past research has not determined when this tenet holds true. We systematically replicated the work of Tudor (1995) by showing that overt responding in computer-based instruction improves learning, even when there is an incentive that might be thought to improve learning enough to mask the effect of overt responding. Subjects were exposed to both read-only and overt-response materials. One group received course-related, bonus points based on posttest performance, whereas the other group received points simply for participation. Within-subject comparison showed greater performance increases when overt responding was required, regardless of the point incentive. No significant differences were found between groups. Author Affiliation: (1) W.A. Howe Developmental Center, Tinley Park, IL (2) Department of Psychology, Western Michigan University, Kalamazoo, MI Article History: Registration Date: 15/10/2004

A study was conducted to examine the impact of the fit between the strategic orientation and the incentive plan of a business on its performance. The context of this research is the electric utility sector from 1988 to 1992, during which incentive schemes were introduced for the first time. The study analyzed data from 50 electric utilities using a pooled, cross-sectional, time series research design. Findings revealed that firms oriented toward Defender strategies experienced improved performance when annual bonus schemes involving cash incentives and accounting performance measures were used. Moreover, firms that preferred Prospector strategies were able to improve their performance when stock-based incentive packages and market-based performance measures were used.