Performance Comparisons and Dynamic Incentives

JOURNAL OF POLITICAL ECONOMY, Vol 105 No 3, June 1997

Posted: 13 Aug 1997

See all articles by Margaret Meyer

Margaret Meyer

University of Oxford - Department of Economics

John Vickers

University of Oxford - Department of Economics

Abstract

It is well known that comparative performance information (CPI) can enhance efficiency in static principal-agent relationships by improving the trade-off between insurance and incentives in the design of explicit contracts. In dynamic settings, however, there may be implicit as well as explicit incentives, for example, managerial career concerns and the ratchet effect in regulation. We show that the dynamic effects of CPI on implicit incentives can either reinforce or oppose the familiar (static) insurance effect and in either case can be more important for efficiency. The overall welfare effects of CPI are thus ambiguous and can be characterized in terms of the underlying information structure.

JEL Classification: D81, D82

Suggested Citation

Meyer, Margaret A. and Vickers, John, Performance Comparisons and Dynamic Incentives. JOURNAL OF POLITICAL ECONOMY, Vol 105 No 3, June 1997, Available at SSRN: https://ssrn.com/abstract=10745

Margaret A. Meyer (Contact Author)

University of Oxford - Department of Economics ( email )

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44-1865-278-557 (Fax)

John Vickers

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

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