Correlation and relative performance evaluation

Fleckinger, Pierre

doi:10.1016/j.jet.2011.11.016

Cited by 28 publications

(24 citation statements)

References 34 publications

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“…13 This proposition is a special case of Proposition 3 in Fleckinger [12]. Note that this author uses the term RPE schemes (relative performance evaluation schemes) instead of tournament-like contracts.…”

mentioning

confidence: 88%

“…This raises the question whether the optimal contract will be tournament-like, in the sense that an agent's wage decreases if the performance of an other agent increases. As Fleckinger [12] and Magill & Quinzii [11] have argued, under ambiguity neutrality this may not be the case even if uncertainty about the true probability distribution affects both agents in the same way. The way the probability distributions of the two actions are believed to vary together still matters.…”

Section: Optimal Contract Under Ambiguity Aversion and Risk Aversionmentioning

confidence: 99%

“…The following proposition characterizes the set of principal-agent problems (within the class of problems discussed in this paper) in which the optimal incentive contract is tournament-like for ambiguity neutral agents. 12 To state the result, denote the variance of the success rate of the high action by σ…”

Section: Optimal Contract Under Ambiguity Aversion and Risk Aversionmentioning

confidence: 99%

“…3 There are two directions in which our insights carry over to the case of risk aversion. First, observe that, as Magill & Quinzii [11] and Fleckinger [12] show, in many cases the optimal incentive contract is not tournament-like under ambiguity neutrality and risk aversion. We show that even if there is little ambiguity, but large ambiguity aversion, the optimal contract will remain tournament-like also in these situations, in the sense that an agent's wage will decrease in the performance of other agents.…”

Section: Introductionmentioning

confidence: 99%

“…Fleckinger [12] considers a setting similar to ours. His setting is slightly more general since outcome distributions may differ between the two agents even if they choose the same action.…”

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confidence: 99%

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Tournaments as a response to ambiguity aversion in incentive contracts

Kellner

2015

Journal of Economic Theory

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We study a principal-agent problem with multiple identical agents, where the action-dependent stochastic relationship between actions and output is perceived to be ambiguous, and agents are ambiguity averse. We argue that ambiguity, and particularly ambiguity aversion, make it more attractive for the principal to choose a tournament. If agents are risk neutral, but ambiguity averse, we show that the set of optimal incentive schemes contains a tournament. Moreover, if ambiguity is rich enough, all optimal incentive schemes must be such that realized output levels affect only the distribution of wages across agents and not the total wages paid out, as it is true for tournaments. When agents are both risk averse and ambiguity averse, tournaments need not be optimal, but ambiguity and ambiguity aversion still favor, in many cases, the use of tournaments or tournament-like schemes over e.g. incentive schemes that only depend on each agent's own output level.

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confidence: 88%

Section: Optimal Contract Under Ambiguity Aversion and Risk Aversionmentioning

confidence: 99%

Section: Optimal Contract Under Ambiguity Aversion and Risk Aversionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 99%

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Tournaments as a response to ambiguity aversion in incentive contracts

Kellner

2015

Journal of Economic Theory

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Team incentives with imperfect mutual inference

2019

Int J Game Theory

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I study the optimal team incentive when the agents can coordinate private actions through repeated interaction with imperfect public monitoring. The agents are able to imperfectly infer each other's private actions via the stochastically correlated measurements. Correlation of measurement noise, besides its risk sharing role in the conventional multiple-agent moral hazard problem, is crucial to the accuracy of each agent's inference. The principal's choice of performance pay to provide incentive via inducing competition or coordination among the agents thus exhibits the trade-off between risk sharing and mutual inference between the agents. I characterize the optimal form of performance pay with respect to the correlation of measurement noise. Whether the conventional theoretical prediction holds depends on how the agents form the mutual inference, based on an exogenous standard or formed endogenously.

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Equilibrium design in an n-player quadratic game

et al. 2022

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As in public good provisions, in a public bad situation such as abatement, the non-cooperative interplay of the participants typically results in low levels of quantities (provision or abatement). In a simple class of n-person quadratic games, we show how Coarse correlated equilibria, using simple mediation devices, can significantly outperform Nash equilibrium outcomes in terms of a stated policy objective.

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Correlation and relative performance evaluation

Cited by 28 publications

References 34 publications

Tournaments as a response to ambiguity aversion in incentive contracts

Tournaments as a response to ambiguity aversion in incentive contracts

Team incentives with imperfect mutual inference

Equilibrium design in an n-player quadratic game

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