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“Trade” Among Agents and the Linearity of Incentives
Working paper
Omar Azfar
May 2002 |
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| We present a model in which agents can “trade” output before it is observed by the principal thus raising the wage bill if the incentive scheme is non-linear. We show that as a consequence it is often optimal for the principal to offer linear incentive schemes to agents. We also provide an explanation for commonly used piece-wise linear incentive schemes. |
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| Last updated on: 3/23/2006 |
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