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The Tenuous Trade‐off between Risk and Incentives
Abstract
Empirical work testing for a negative trade‐off between risk and incentives has not had much success: the data suggest a positive relationship between measures of uncertainty and incentives rather than the posited negative trade‐off. I argue that the existing literature fails to account for an important effect of uncertainty on incentives through the allocation of responsibility to employees. When workers operate in certain settings, firms are content to assign tasks to workers and monitor their inputs. By contrast, when the situation is more uncertain, they delegate responsibility to workers but, to constrain their discretion, base compensation on observed output.
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Citations
Cites
The Provision of Incentives in Firms
Prendergast, C. (1999) · Journal of Economic Literature · doi:10.1257/jel.37.1.7 · Cited by 3,338
Self-citation
Cited by
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Smith, H. J., Dinev, T., & Xu, H. (2011) · MIS Quarterly · doi:10.2307/41409970 · Cited by 2,013
Americans Do IT Better: US Multinationals and the Productivity Miracle
Bloom, N., Sadun, R., & Reenen, J. V. (2012) · American Economic Review · doi:10.1257/aer.102.1.167 · Cited by 1,028
Blair, R. D., & Lafontaine, F. (2005) · doi:10.1017/cbo9780511753879 · Cited by 364
Are U.S. CEOs Paid More? New International Evidence
Fernandes, N., Ferreira, M. A., Matos, P., & Murphy, K. J. (2013) · Review of Financial Studies · doi:10.1093/rfs/hhs122 · Cited by 302
International Franchising Practices in Mexico: Do Franchisors Customize Their Contracts?
Lafontaine, F., & Oxley, J. E. (2004) · Journal of Economics & Management Strategy · doi:10.1111/j.1430-9134.2004.00005.x · Cited by 69
Metadata
- Authors
- Prendergast, C.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 2002-10
- Volume
- 110
- Issue
- 5
- Pages
- 1071-1102
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W2068416123
- Cited by
- 995
- References
- 1
- FWCI
- 159.10
- Type
- journal article
- Language
- en
- Open access
- closed
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
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