Designing Incentives: Agency Risks and Organizational Routines
Agency Theory: Incentives and Contract Risks
Systems of Incentives vs. Monitoring
Systems of incentives are a mechanism for the direct control of agency, serving as an alternative to monitoring.
Types of Motivation
- Extrinsic Motivation: Determined by the expected material profit or loss to be gained or avoided.
- Intrinsic Motivation: Occurs when the task itself is sufficiently encouraging for the person performing it.
Explicit and Implicit Incentives
Incentives based on an objective measure of performance are explicit incentives. These include:
- Individual incentives (easy for employees to understand).
- Group-based pay results.
Incentives based on a subjective assessment are implicit incentives.
Perfect and Incomplete Contracts
A contract is perfect or complete...