Ben Golub (Northwestern University)

"Incentive Design with Spillovers"

Abstract:

A principal uses incentive pay based on (uncertain) outcomes of a team project to motivate a team of several agents to exert costly, complementary efforts. Examples include stock options in startups and prizes for research teams. We characterize the optimal allocation of incentive pay across agents, solving a challenging team contracting problem using new tools from network theory. We describe how both productivity and organizational centrality shape optimal incentive pay. The use of optimal team incentive contracts can either amplify or mute inequality.