Original Article
Push or pull? Performance-pay, incentives, and information
David Rietzke, Yu Chen,
Yu Chen
University of Graz
Yu Chen unexpectedly passed away in early 2019. He was a great friend and coauthor, and will be sincerely missed.
Search for more papers by this authorDavid Rietzke, Yu Chen,
Yu Chen
University of Graz
Yu Chen unexpectedly passed away in early 2019. He was a great friend and coauthor, and will be sincerely missed.
Search for more papers by this authorA previous Working Paper was circulated under the title, “Push or pull? Grants, prizes, and information.” We thank the Editor, David Martimort, and three anonymous referees for substantially improving the article. We also thank Stan Reynolds, Andreas Blume, Asaf Plan, John Wooders, Martin Dufwenberg, Rabah Amir, Derek Lemoine, Dakshina De Silva, Brian Roberson, Junichiro Ishida, Matthew Mitchell, Tim Flannery, Dominik Grafenhofer, Dawen Meng, and Bo Chen. Finally, we thank participants at the Lancaster University Conference on Auctions, Competition, Regulation, and Public Policy (May 2015, Lancaster, UK), EARIE Conference (August 2015, Munich, Germany), and the TILEC Conference on Competition, Standardization, and Innovation (December 2015, Amsterdam, The Netherlands). Chen gratefully acknowledges financial support from the National Natural Science Foundation of China (grant no. 71673133) and the National Social Science Fund of China (grant no. 16BJL035).
Abstract
We study a principal-agent model wherein the agent is better informed of the prospects of the project, and the project requires both an observable and unobservable input. We characterize the optimal contracts, and explore the trade-offs between high- and low-powered incentive schemes. We discuss the implications for push and pull programs used to encourage Research and Development (R&D) activity, but our results are relevant in other contexts.
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