Principal–agent models where a principal is only affected by extreme performances

Author(s)

Yigal Gerchak, Christian Schmid

Abstract

We consider an independent agents setting, where only the highest or lowest achievement affects the principal. An example of highest achievement scenario is the output of parallel research and development (R&D) teams, when only the highest/best achievement matters. An example of lowest achievement could be an assembly system, where the number of product units that can be assembled equals the lowest number of adequate parts of any component. The findings show that when only extreme performances matter, a principal employs weaker incentives for multiple agents. Furthermore, the reward parameter is especially small if only the lowest achievement is relevant.

Organisation(s)

Department of Accounting, Innovation and Strategy

External organisation(s)

Tel Aviv University

Journal

Managerial and Decision Economics

Volume

43

Pages

468-477

No. of pages

10

ISSN

0143-6570

DOI

https://doi.org/10.1002/mde.3394

Publication date

06-2021

Peer reviewed

Yes

Austrian Fields of Science 2012

502015 Innovation management, 502044 Business management, 502006 Controlling

ASJC Scopus subject areas

Management of Technology and Innovation, Business and International Management, Strategy and Management, Management Science and Operations Research

Portal url

https://ucris.univie.ac.at/portal/en/publications/principalagent-models-where-a-principal-is-only-affected-by-extreme-performances(00d62ddd-a932-4696-b34f-1f0825307d66).html