Delegation and nonmonetary incentives

• 成果类型: Article
• 署名作者: Ambrus, Attila; Egorov, Georgy
• 署名单位: Duke University; Northwestern University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2017.06.002
• 发表日期: 2017
• 页码: 101-135
• 关键词: delegation; Organizational procedures; Money burning

摘要

In many contracting settings, actions costly to one party but with no direct benefits to the other (money burning) may be part of the explicit or implicit contract. A leading example is bureaucratic procedures in an employer employee relationship. We study a model of delegation with an informed agent, where the principal may impose money-burning on the agent as a function of the agent's choice of action, and show that money-burning may be part of the optimal contract. This result holds even if action-contingent monetary transfers are possible, as long as transfers from the principal to the agent are bounded from below (as in limited liability or minimal wage requirements). In fact, the optimal contract can involve a combination of both efficient monetary incentives and inefficient nonmonetary incentives through money burning. Our model delivers some results novel to the delegation literature. First, money-burning is more likely if the principal is more sensitive to the choice of action than the agent. This is consistent with the perception that there is more bureaucratization in large organizations. Second, money -burning is more likely if the agent's limited liability constraint is tighter relative to his participation constraint. This implies that a higher minimum wage distorts employment contracts towards using socially wasteful nonmonetary incentives, leading to a Pareto inferior outcome as the agent is still held down to his reservation value through increased money burning.(C) 2017 Elsevier Inc. All rights reserved.