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Veikko Thiele
''Aggregating Performance Measures in Multi-Task Agencies''
( 2009, Vol. 29 No.4 )
It has been argued in the multi-task agency literature that effort distortion can be mitigated by applying several performance measures in incentive contracts. This paper analyzes the efficient aggregation of multiple performance measures aimed at motivating non-distorted effort. It demonstrates that non-distorted effort can be induced by combining a sufficient quantity of informative performance measures. However, this is only optimal if the required aggregation concurrently maximizes the precision of the agent`s performance evaluation. This paper further illustrates how the optimal performance evaluation is affected by the ability of individual agents to perform relevant tasks.
Keywords: Multi-task agencies, effort distortion, performance measurement, incentives
JEL: D8 - Information, Knowledge, and Uncertainty: General
Manuscript Received : Aug 27 2008 Manuscript Accepted : Oct 28 2009

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