Performance Measurement in Multi-Task Agencies

Thiele, Veikko (2007): Performance Measurement in Multi-Task Agencies.

Abstract

This paper analyzes a multi-task agency model with a risk-neutral and financially constrained agent. The agent's performance evaluation is thereby incongruent, i.e. it does not perfectly reflect the relative contribution of the agent's multi-dimensional effort to firm's profit. This paper elaborates on the improvement of the agent's performance evaluation through the costly acquisition of additional performance measures aimed at inducing the agent to implement a more efficient effort allocation across tasks. It contrasts two alternatives for the principal: (i) to centrally invest in the information acquisition; or (ii), to delegate this task to a supervisor. This paper demonstrates that the principal generally favors delegation for a sufficiently incongruent measurement of the agent's performance, and a centralized investment, otherwise.

• Item Type: MPRA Paper
• Institution: University of British Columbia
• Language: English
• Keywords: Multi-task agencies; performance measurement; distortion; congruity; limited liability; incentives
• Subjects: D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior ; Transaction Costs ; Property Rights; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M5 - Personnel Economics > M52 - Compensation and Compensation Methods and Their Effects; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design

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