Targets and resources: a screening perspective

Sikdar

Abstract

To secure funding for a project, an agent (informed about the project's type) announces a target output. The principal provides more generous resources for high targets but makes compensation tied to performance relative to the projection. The incentive mechanism is geared towards screening project/agent types for resource disbursement at the ex-ante stage and motivating appropriate efforts at the interim stage. These dual objectives are embedded in an optimal share contract solution: a pair of startup funds and output share between the principal and agent. The target mechanism's performance is then assessed with respect to implementation of the optimal share contract solution. The focus is on linear contracts for their applicability and practical relevance.

Citation

Sikdar. (2016). Targets and resources: a screening perspective. Managerial and Decision Economics, 471-489. https://doi.org/10.1002/mde.2798

• Acceptance Date: Mar 14, 2016
• Publication Date: May 18, 2016
• Journal: Managerial and Decision Economics: the international journal of research and progress in management economics
• Print ISSN: 0143-6570
• Publisher: Wiley
• Pages: 471-489
• DOI: https://doi.org/10.1002/mde.2798
• Keywords: Resource allocation, adverse selection, moral hazard, targets, accountability, screening.
• Publisher URL: https://doi.org/10.1002/mde.2798