Work

Absolute and relative performance-based incentive mechanism: Objective competition or subjective concerns?

Year: 2025

Type: article

Abstract: This study proposes an absolute and relative performance evaluation (ARPE) framework integrating both objective (group size) and subjective (competition concern) incentives. In homogeneous settings, moderate competition increases effort and payoff, whereas excessive competition distorts incentives. Under multidimensional agent heterogeneity (i.e., efficiency, cost, risk aversion, and competition sensitivity), we find that optimal contracts offer greater incentives to more efficient and affordable agents. However, peer pressure may hinder the effort of such agents, and risk aversion may bolster competitive responses. Our results underscore the main interaction effects between agent characteristics and competitive structures, thus offering guidance for robust contract design in performance-driven environments.

Source: Journal of Management Science and Engineering

DOI: 10.1016/j.jmse.2025.09.003

Authors: Liyuan Wang, Kaihong Wang, Zhiyu Wang

Institution: Southwestern University of Finance and Economics

Language: English

Topic: Auction Theory and Applications

Subfield: Management Science and Operations Research

Field: Decision Sciences

Domain: Social Sciences

Open Access status: diamond

Funders: National Natural Science Foundation of China, Natural Science Foundation of Sichuan Province, Sichuan Province Science and Technology Support Program

Awards: G4908691487, G5898016567