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Motivations, monitoring technologies, and pay for performance

Cordella, Antonio and Cordella, Tito (2017) Motivations, monitoring technologies, and pay for performance. Journal of Economic Behavior and Organization, 133. pp. 236-255. ISSN 0167-2681

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Identification Number: 10.1016/j.jebo.2016.10.016

Abstract

Monitoring technologies and pay for performance (PFP) contracts are becoming popular solutions to improve public services delivery. Their track record is however mixed. To show why this may be the case, this paper develops a principal agent model where agents’ motivations vary and so the effectiveness of monitoring technologies. In such a set-up, it shows that: (i) monitoring technologies should be introduced only if agents’ motivations are poor; (ii) optimal PFP contracts are non-linear/non-monotonic in agents’ motivations and monitoring effectiveness; (iii) investments aimed at improving agents’ motivations and monitoring quality are substitutes when agents are motivated, complements otherwise; (iv) if the agents’ “type” is private information, the more and less motivated agents could be separated through a menu of PFP/non-PFP contracts, designed in a way that only the less motivated ones choose the PFP.

Item Type: Article
Official URL: http://www.sciencedirect.com/science/journal/01672...
Additional Information: © 2017 Elsevier B.V.
Divisions: Management
Subjects: H Social Sciences > HB Economic Theory
JEL classification: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J33 - Compensation Packages; Payment Methods
J - Labor and Demographic Economics > J4 - Particular Labor Markets > J45 - Public Sector Labor Markets
M - Business Administration and Business Economics; Marketing; Accounting > M5 - Personnel Economics > M52 - Compensation and Compensation Methods and Their Effects (stock options, fringe benefits, incentives, family support programs, seniority issues)
Sets: Departments > Management
Research centres and groups > Information Systems and Innovation Group
Date Deposited: 21 Dec 2016 14:47
Last Modified: 20 Mar 2019 03:10
URI: http://eprints.lse.ac.uk/id/eprint/68713

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