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Project Selection with Strategic Communication and Further Investigations
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On the Role of Uncertainty in the Risk-Incentives Tradeoff
In: The B.E. journal of theoretical economics, Band 8, Heft 1
ISSN: 1935-1704
We use a simple agency model to clarify and characterize the various avenues through which changes in the level of uncertainty impact the optimal strength of linear incentives. Instead of attempting to characterize different "types" of uncertainty, which has been the approach in the literature so far, we base our characterization on the link between uncertainty and the agent's action choice. We then use this characterization to provide conditions under which the relationship between uncertainty and incentives can be positive and relate it back to the existing models in the literature.
The Politics of Compromise
In: American economic review, Band 106, Heft 2, S. 229-259
ISSN: 1944-7981
An organization must select among competing projects that differ in their payoff consequences for its members. Each agent chooses a project and exerts effort affecting its completion time. When one or more projects are complete, the agents select which one to adopt. The selection rule for multiple projects that maximizes ex post welfare leads to inefficiently high polarization; rules that favor later proposals improve upon ex post optimal selections. The optimal degree of favoritism increases in the cost of effort and discount rate. This trade-off informs the design of process rules in standard-setting organizations and helps explain their performance. (JEL C78, D23, D71, D72, D83, L15)