Incentive Centered Design : Incentives Pay

Comparative Evaluation

Should performance be based on performance of

1. co workers
2. performance of workers elsewhere
3. performance of other companies

2. "Not fair" agent can't control what others do

but can act as a performance indicator.

Information Intensity Principle

If pay takes the form t(z,y) = alpha + beta(z+gy) then beta measure the intensity of the incentives: how much pay varies with effort

Optimal intensity depends on four factors:

1. incremental profits from addl effort
2. precision of estimating effort
3. agent's risk tolerance
4. agent's responsiveness to incentives.


Monitoring intensity principle

1. Spend more on improving monitoring when incentive intensity Beta is higher.

If principle can invest in better measurement/monitoring, then if incentive intensity of high then it is better to have more precise measures of performance.



Equal Compensation Effort

If agent's effort on multiple desirable activities cannot be separately monitored, then the marginal payoff to the agent for each must be equal or those with leser marginal payoffs will receive zero effort!

This is basically a possibility for leading to unattended consequences.


Eisenhardt Summary



Behavior Based Contracts Outcome Based Contracts

Info systems + -

Outcome Uncertainly + -

Agent Risk aversion + _

Principal Risk Aversion

Degree of Goal Conflict

Comments

Post a Comment

Popular posts from this blog

going mobile !

Using the push registry to launch midlets : MIDP 1.0 specified only one way to start a MIDlet: manual activation by the user. However the MIDP 2.0 specification adds two new mechanisms to launch a MIDlet: in response to an incoming connection or at a scheduled time. While the process is not really difficult as explained in the papers and articles given on the net ( http://developers.sun.com/techtopics/mobility/midp/questions/pushregistry/ ) The actual implementation of it is tricky mainly because of the practical difficulties and platform implementations. We needed to auto start a MIDlet each time the phone boots up and the most obvious choice seemed to be using the Java Push Registry Alarm method. Having read a couple of tutorials and seen the example code given it didn’t seem something too difficult to do – however, and such is the software jungle, overcoming the practical difficulties seemed to be the biggest hurdle. For example, in my case I was using Eclipse 3.0 with the java WTK
Read more

Expertise

Some of you may be aware of the interesting research done by Dr. Anders Ericsson around the theme of "Acquisition of Expert Performance and Deliberate Practice" An important finding is that it normally takes 10,000 hours of practice to become expert in any discipline. Of course, I can imagine this would vary a lot depending on kind of practice and how it builds on your earlier skill. So I did some quick behind the napkin math: 1. Practice Required = 10,000 hours Assuming a concentrated effort to put at least 4 hours of practice into honing your expertise in your chosen field - the other being taken up by other information tasks (e.g. did you know a large part of the so called “information work” is actually searching for information? – fun fact I gathered while working on Enterprise Search ) 2. Time required to gain that expertise = 10,000/4 = 2500 days 3. Which makes it about 7 years to gain expertise in a discipline. Interesting!
Read more

3 Idiots and Chak De India

I'm a strong believer that who we are shapes a lot of our decisions. So assuming that hypothesis is true, let's try to look at two roles from two major bollywood actors: Aamir Khan and Shahrukh Khan. The purpose to try to see how how they perceive themselves - or project themselves if you will - based on what appeals to them in a role. The two roles we'll look at are - Shahrukh as Kabir Khan in Chak De India and Aamir Khan as Ranchoddas (Rancho) in 3 idiots. Take Racho's character, A genius , who believes the right way is to chase excellence and not success (box office?) which will chase after you if you excel at what you do. The traditional system doesn't understand him and resists his ways at first but ultimately he proves his mettle. Interesting to note that Aamir's characters doesn't do badly in the courses but tops it - despite doing things against the system, and eventually is very 'successful'. If you remove the context of the movie from the a
Read more