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You Don't Always Get What You Pay For
Schnedler, Wendelin - 2007
Consider a principal-agent relationship in which more effort by the agent raises the likelihood of success. Does rewarding success, i.e., paying a bonus, increase effort in this case? I find that bonuses have not only an incentive but also an income effect. Overall, bonuses paid for success may...
Persistent link: https://www.econbiz.de/10011422168
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Hidden Action, Identification, and Organization Design
Schnedler, Wendelin - 2010
Incentives often fail in inducing economic agents to engage in a desirable activity; implementability is restricted. What restricts implementability? When does re-organization help to overcome this restriction? This paper shows that any restriction of implementability is caused by an identifi...
Persistent link: https://www.econbiz.de/10011422212
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Limited Liability and the Risk-Incentive Relationship
Budde, Jörg; Kräkel, Matthias - 2008
Several empirical findings have challenged the traditional view on the trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empiri- cal puzzle on the positive relationship between risk and incentives can be explained....
Persistent link: https://www.econbiz.de/10010264917
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You don't always get what you pay for
Schnedler, Wendelin - 2007
Consider a principal-agent relationship in which more effort by the agent raises the likelihood of success. Does rewarding success, i.e., paying a bonus, increase effort in this case? I find that bonuses have not only an incentive but also an income effect. Overall, bonuses paid for success may...
Persistent link: https://www.econbiz.de/10010268396
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Standards and Incentives under Moral Hazard with Limited Liability
Reinshagen, Felix - 2012
dimension of the agent’s effort is observable and the other is not. The principal can thusmake the contract conditional not only … on outcome but also on observable effort. The principal’s optimal contract gives the agent no rent and – in contrast to …
Persistent link: https://www.econbiz.de/10010427619
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The fetters of the sib: Weber meets Darwin
Alger, Ingela; Weibull, Jörgen W. - 2007
We analyze the effects of family ties on the incentives for productive effort. A family is modelled as a pair of altruistic siblings. Each sibling exerts effort to produce output under uncertainty and siblings may transfer output to each other. We show that altruism has a non-monotonic effect on...
Persistent link: https://www.econbiz.de/10010281251
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The Pygmalion effect : an agency model with reference dependent preferences
Daido, Kohei; Itoh, Hideshi - 2005
We attempt to formulate and explain two types of self-fulfilling prophecy, called the Pygmalion effect (if a supervisor thinks her subordinates will succeed, they are more likely to succeed) and the Galatea effect (if a person thinks he will succeed, he is more likely to succeed). To this...
Persistent link: https://www.econbiz.de/10010261169
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Banking regulation and prompt corrective action
Freixas, Xavier; Parigi, Bruno Maria - 2007
We explore the rationale for regulatory rules that prohibit banks from developing some of their natural activities when their capital level is low, as epitomized by the US Prompt Corrective Action (PCA). This paper is built on two insights. First, in a moral hazard setting, capital requirement...
Persistent link: https://www.econbiz.de/10010264241
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Securitization and moral hazard: Evidence from credit score cutoff rules
Bubb, Ryan; Kaufman, Alex - 2011
research has hypothesized that these cutoff rules result from a securitization rule of thumb. Under this theory, an observed … model that rationalizes such an origination rule of thumb. Under this alternative theory, jumps in default are not evidence … securitization rule-of-thumb theory but consistent with the origination rule-of-thumb theory. There are jumps in the number of loans …
Persistent link: https://www.econbiz.de/10010286944
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Wage floors and optimal job design
Kragl, Jenny; Schöttner, Anja - 2011
We analyze the effects of lower bounds on wages, e.g., minimum wages or liability limits, on job design within firms. In our model, two tasks contribute to non-veriable firm value and affect an imperfect performance measure. The tasks can be assigned to either one or two agents. In the absence...
Persistent link: https://www.econbiz.de/10010293373