Incentive Design with Spillovers

Krishna Dasaratha; Benjamin Golub; Anant Shah

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arXiv · 2411.08026

Incentive Design with Spillovers

Krishna Dasaratha·Benjamin Golub·Anant Shah

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Abstract

A principal uses payments conditioned on stochastic outcomes of a team project to elicit costly effort from the team members. We develop a multi-agent generalization of a classic first-order approach to contract optimization by leveraging methods from network games. The main results characterize the optimal allocation of incentive pay across agents and outcomes. Incentive optimality requires equalizing, across agents, a product of (i) individual productivity (ii) organizational centrality and (iii) responsiveness to monetary incentives. We specialize the model to explore several applied questions, including whether compensation should reward individual ability or collaborativeness and how the strength of complementarities shapes pay dispersion.

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econ.TH cs.GT

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Krishna Dasaratha, Benjamin Golub, Anant Shah. 2024-11-12. Incentive Design with Spillovers. https://arxiv.org/abs/2411.08026

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