Payoff Implications of Incentive Contracting

35 Pages Posted: 20 May 2020

See all articles by Daniel Ferguson Garrett

Daniel Ferguson Garrett

University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: May 2020

Abstract

In the context of a canonical agency model, we study the payoff implications of introducing optimally structured incentives. We do so from the perspective of an analyst who does not know the agent's preferences for responding to incentives, but does know that the principal knows them. We provide, in particular, tight bounds on the principal's expected benefit from optimal incentive contracting across feasible values of the agent's expected rents. We thus show how economically relevant predictions can be made robustly given ignorance of a key primitive.

Keywords: mechanism design, Procurement, robustness

JEL Classification: D82

Suggested Citation

Garrett, Daniel Ferguson, Payoff Implications of Incentive Contracting (May 2020). CEPR Discussion Paper No. DP14725, Available at SSRN: https://ssrn.com/abstract=3603955

Daniel Ferguson Garrett (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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