Incentive Contracts and Performance Measurement

Physicians’ multitasking and incentives: Empirical evidence from a natural experiment

“…While the increase in services can be beneficial to patients waiting for treatment, such high-powered incentive contracts, that closely link remuneration to quantity of care, may cause physicians to see too many patients and to neglect other tasks such as the quality of care and non-clinical activities such as teaching and administrative duties. 3 Theoretical work suggests that low-powered incentive contracts can be optimal when some tasks are unobservable or observable only at very high costs (e.g., Holmstrom and Milgrom, 1991;Baker, 1992). These contracts are often referred to as "mixedcompensation" contracts in the physician compensation literature (Eggleston, 2005).…”

Entrepreneurs’ Education and Different Variable Pay Schemes in Italian Firms

“…However, a number of controversial issues have emerged in the literature, and most of these issues are related to the difficulties of objective performance measurement (Holmstrom and Milgrom, 1991;Baker, 1992) and the complexity of correctly rewarding effort in settings where parties (the principal and the agent) cannot write enforceable contracts (Baker, 1992).…”

Performance Measurement and Information Production

“…It leads to improved decisions from the perspective of the agent as well as the principal. However, it is often impossible to base the contract on the principal's objective, which leads to the use of alternative performance measures (Baker, 1992;Feltham and Xie, 1994). In this case two questions arise that we address in this paper.…”

“…Following Baker (1992), we call this sort of behavior "gaming". Hence, the principal may be better o¤ if the agent does not perfectly understand how his actions a¤ect the performance measure:…”

“…Baker (1992) and Feltham and Xie (1994) show that the quality of a performance measure depends on its distortional e¤ects. In our model, the amount of distortion is not exogenous but instead depends on the level of information the agent has about the performance measure.…”