Bonus Payments versus Efficiency Wages in the Repeated Principal-Agent Model with Subjective Evaluations

2012 ◽  
Vol 4 (3) ◽  
pp. 34-56 ◽  
Author(s):  
Lucas Maestri
Keyword(s):  
Performance Appraisal ◽  
Efficiency Wages ◽  
Principal Agent ◽  
Efficiency Wage ◽  
Agent Model ◽  
Self Evaluation ◽  
Subjective Evaluations ◽  
Bonus Payments ◽  
Principal Agent Model ◽  
The Relationship

We study an infinitely repeated principal-agent model with subjective evaluations. We compare the surplus in efficiency-wage equilibria and in bonus-payments equilibria. The agent receives a constant wage and is motivated by the threat of dismissal in efficiency-wage equilibria. The agent receives a bonus and quits the relationship after disagreements between his self-evaluation and the principal's performance appraisal in bonus-payments equilibria. We construct a class of equilibria with bonus payments that approach efficiency as patience increases. In contrast, payoffs from efficiency-wage equilibria are bounded away from the Pareto-payoff frontier for any discount factor. (JEL D82, J33, J41)

Rule Creation in a Political Hierarchy

2012 ◽  
Vol 106 (3) ◽  
pp. 622-643 ◽  
Author(s):  
CLIFFORD J. CARRUBBA ◽  
TOM S. CLARK
Keyword(s):  
Supreme Court ◽  
Federal Courts ◽  
Principal Agent ◽  
Agent Model ◽  
The Supreme Court ◽  
Political Hierarchy ◽  
Lower Courts ◽  
Principal Agent Model ◽  
The Relationship ◽  
Judicial Hierarchy

Principal-agent relations are replete in politics; politicians are agents of electorates, bureaucrats are agents of executives, lower courts are agents of upper courts, and much more. Commonly, principals are modeled as the rule-making body and agents as the rule-implementing body. However, principals often delegate the authority to make the rules themselves to their agents. The relationship between the lower federal courts and the Supreme Court is one such example; a considerable portion of the law (rules) is made in the lower federal courts with the Supreme Court serving primarily as the overseer of those lower courts’ decisions. In this article, we develop and test a principal-agent model of law (rule) creation in a judicial hierarchy. The model yields new insights about the relationship among various features of the judicial hierarchy that run against many existing perceptions. For example, we find a non-monotonic relationship between the divergence in upper and lower court preferences over rules and the likelihood of review and reversal by the Supreme Court. The empirical evidence supports these derived relationships. Wider implications for the principal-agent literature are also discussed.

scholarly journals Can Citizens Affect the Performance of Their Elected Representatives? A Principal–Agent Model of Strategic Interaction in Democratic Systems

Mathematics ◽  
2020 ◽  
Vol 8 (7) ◽  
pp. 1194
Author(s):  
Giuseppe Lanza ◽  
Dario Maimone Ansaldo Patti ◽  
Pietro Navarra
Keyword(s):  
Theory Of The Firm ◽  
Principal Agent ◽  
Human Beings ◽  
Agent Model ◽  
Principal Agent Model ◽  
Motivation Crowding ◽  
Democratic Systems ◽  
Elected Representatives ◽  
The Relationship ◽  
Monitoring Devices

According to standard economic theory, human beings are expected to work more and better when benefits in the form of lower costs or higher reward increase. Principal–agent theory applied to the theory of the firm relies on this relationship and states that employees should be paid according to how well they perform their tasks. In this framework, monitoring devices are introduced to control employees’ performance and determine salaries. In this paper we construct a principal–agent model to describe the relationship between citizens/voters and elected representatives in which monitoring devices are introduced to control the performance of the latter. We demonstrate that tighter controls may produce better performance but also may produce a reduction in the intrinsic motivations of elected representatives, resulting in a reduction of their work effort. These results are interpreted in the light of the motivation crowding theory.

Research on Incentive Equilibrium Mechanism of Agent-Construction Relationship Based on Multitask Principal-Agent Model

2011 ◽  
Vol 250-253 ◽  
pp. 2440-2445
Author(s):  
Zhong Bing Wu ◽  
Bing Yao ◽  
Yi Sheng Liu ◽  
Shi Jie Jiang
Keyword(s):  
Investment Project ◽  
Principal Agent ◽  
Government Investment ◽  
Construction Enterprise ◽  
Agent Model ◽  
Principal Agent Problem ◽  
Principal Agent Model ◽  
Chinese Scholars ◽  
Incentive Equilibrium ◽  
The Relationship

Most of the Chinese scholars have simplified the relationship between the client and the agent-construction enterprise as a single-task principal-agent problem, which has ignored the important fact of multitasks, such as progress, quality and cost. In this paper, a multi-task principal-agent model with three tasks, i.e. progress, quality and cost, is constructed to analyze the optimal incentive contractual conditions and multi-task incentive equilibrium mechanism of the agent-construction enterprise, which can provide theoretical basis for the regulatory policy of government investment project.

scholarly journals Adaptive Contract Design for Crowdsourcing Markets: Bandit Algorithms for Repeated Principal-Agent Problems

2016 ◽  
Vol 55 ◽  
pp. 317-359 ◽  
Author(s):  
Chien-Ju Ho ◽  
Aleksandrs Slivkins ◽  
Jennifer Wortman Vaughan
Keyword(s):  
Dynamic Pricing ◽  
Principal Agent ◽  
Bandit Problem ◽  
Agent Model ◽  
Effort Level ◽  
Adaptive Discretization ◽  
Bonus Payments ◽  
Principal Agent Model ◽  
Pricing Problems

Crowdsourcing markets have emerged as a popular platform for matching available workers with tasks to complete. The payment for a particular task is typically set by the task's requester, and may be adjusted based on the quality of the completed work, for example, through the use of "bonus" payments. In this paper, we study the requester's problem of dynamically adjusting quality-contingent payments for tasks. We consider a multi-round version of the well-known principal-agent model, whereby in each round a worker makes a strategic choice of the effort level which is not directly observable by the requester. In particular, our formulation significantly generalizes the budget-free online task pricing problems studied in prior work. We treat this problem as a multi-armed bandit problem, with each "arm" representing a potential contract. To cope with the large (and in fact, infinite) number of arms, we propose a new algorithm, AgnosticZooming, which discretizes the contract space into a finite number of regions, effectively treating each region as a single arm. This discretization is adaptively refined, so that more promising regions of the contract space are eventually discretized more finely. We analyze this algorithm, showing that it achieves regret sublinear in the time horizon and substantially improves over non-adaptive discretization (which is the only competing approach in the literature). Our results advance the state of art on several different topics: the theory of crowdsourcing markets, principal-agent problems, multi-armed bandits, and dynamic pricing.

Why Were Workers Whipped? Pain in a Principal-Agent Model

1990 ◽  
Vol 100 (403) ◽  
pp. 1109 ◽  
Author(s):  
Michael Suk-Young Chwe
Keyword(s):  
Principal Agent ◽  
Agent Model ◽  
Principal Agent Model
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