Dynamic Incentives in Organizations

Download or read book Dynamic Incentives in Organizations written by Martin E. Ruckes and published by . This book was released on 2015 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a two-period model in which an employee searches for business projects in a changing environment. An employee who discovers a profitable project in period 1 is reluctant to search again in period 2 because the old project may continue to be profitable. Management's response to this inertial tendency is either to increase the financial incentives to encourage searching or to accept no searching. The former response increases search efforts and total profits; the latter response has the opposite results. Inertia can be removed by restructuring the firm in period 2, but this may create a time-inconsistency problem.