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Essays on Incentives for Effort Provision in Principal- Agent Settings

  • Author(s): Kravitz, Troy A.
  • et al.
Abstract

Situations in which multiple parties with competing preferences interact are endemic throughout society. These essays consider the problem of a principal who seeks to induce self-interested agents to exert effort or promise contributions. The principal's task is to create an incentive structure that aligns the agents' preferences with his own. Chapter 1 considers a principal seeking to induce agents to exert costly, unobservable effort when the output they produce is unverifiable. The firm's solution is to hire multiple workers for some tasks and compare the output produced by the agents. The optimal mechanism bundles multiple tasks together to reduce the cost of monitoring and conditions wage payment for any task upon satisfactory completion of all tasks. The optimal mechanism is not efficient as the principal prefers greater duplication of tasks in exchange for reduced worker rents. Asymptotically, as jobs grow large, the firm approximates its first-best payoffs from the contractible effort benchmark. It is only in the limit that the optimal mechanism is also efficient. Chapter 2 studies the campaign finance landscape following recent changes to the law. A discriminatory all-pay contest model with a contribution cap is used to study legislative and lobbying behavior. The principal, a strategic lawmaker, is central to the analysis. The lawmaker both designs the prize the lobbyists are competing to obtain -- and, in doing so, determines their valuations for the prize -- and determines the terms of the prize's allocation. Contrary to existing work, expected contributions always increase as the contribution cap is relaxed. The effect on policy is more nuanced and depends on whether the cap is binding. The analysis highlights that a decrease in competitive forces, for example, from one lobbyist being richer or valuing the prize more, can be only partially offset by providing a discriminatory benefit to the other lobbyist. The strategic lawmaker endeavors to prevent such an imbalance from arising in the first place

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