Work

Rank Uncertainty in Organizations

Year: 2020

Type: article

Abstract: A principal incentivizes a team of agents to work by privately offering them bonuses contingent on team success. We study the principal’s optimal incentive scheme that implements work as a unique equilibrium. This scheme leverages rank uncertainty to address strategic uncertainty. Each agent is informed only of a ranking distribution and his own bonus, the latter making work dominant provided that higher-rank agents work. If agents are symmetric, their bonuses are identical. Thus, discrimination is strictly suboptimal, in sharp contrast with the case of public contracts (Winter 2004). We characterize how agents’ ranking and compensation vary with asymmetric effort costs. (JEL D23, D62, D81, D82, D86)

Source: American Economic Review

DOI: 10.1257/aer.20200555

Authors: Marina Halac, Elliot Lipnowski, Daniel Rappoport

Institutions: Center for Economic and Policy Research, Yale University, Columbia University, University of Chicago

Language: English

Topic: Game Theory and Applications

Subfield: Management Science and Operations Research

Field: Decision Sciences

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

OpenAlex ID: W3134450821

FWCI: 3.817

Cites: 35

Cited by: 63

Related to: 10