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Task-Specific Abilities in Multi-Task Agency Relations

Thiele, Veikko (2007): Task-Specific Abilities in Multi-Task Agency Relations.

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Abstract

This paper analyzes a multi-task agency framework where the agent exhibits task-specific abilities. It illustrates how incentive contracts account for the agent's task-specific abilities if contractible performance measures do not reflect the agent's contribution to firm value. This paper further sheds light on potential ranking criteria for performance measures in multi-task agencies. It demonstrates that the value of performance measures in multi-task agencies cannot necessarily be compared by their respective signal/noise ratios as in single-task agency relations. It is rather pivotal to take the induced effort distortion and measure-cost efficiency into consideration -- both determined by the agent's task specific abilities.

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