Journal of Investment and Management

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Studying on the Relation Between Ability Structure and Incentive Structure Based on a Game Model

Received: 04 September 2016    Accepted: 22 September 2016    Published: 14 October 2016
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Abstract

A game model is designed to analyze the relation between employee’s ability structure and enterprise’s incentive structure. And some factors’ impaction on incentive structure is analyzed, such as employee’s ability, risk aversion, output error, and product price. The intrinsic mechanism of employee classification according to their ability level is also analyzed. The result reveals that under competitive working environment employee’s ability level should be kept consistent, employee with different ability levels can’t be classified by themselves, and piece rates should be kept direct ratio to employee’s ability level and product’s market trend. Although strict balanced incentive structure comprises of fixed wage and prize or promotion, balanced conditions can not usually be satisfied in real situation, so that fixed wage, piece rate wage, and prize or promotion should be combined to form a suitable proportion structure. Prize or promotion mechanism will strengthen the steepness degree of incentive structure, which will strengthen incentive effect under the condition of employee’s participation restriction.

DOI 10.11648/j.jim.20160506.11
Published in Journal of Investment and Management (Volume 5, Issue 6, December 2016)
Page(s) 93-98
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Ability Structure, Incentive Structure, Game Model

References
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[5] Edward P. Lazear (1986), “Salaries and Piece Rates,” The Journal of Business, 59, 405-432.
[6] Malcomson, James M. (1984), “Work Incentives, Hierarchy, and Internal Labor Markets,” The Journal of Political Economy, 92, 486-507.
[7] Holmstrom,B., Ricard I Costa (1986), “Managerial Incentives and Capital Management,” Quarterly Journal of Economics, 101, 403-460.
[8] Holmstrom, B., P. Milgrom (1987), “Aggregation and Linearity in the Provision of Intertemporal Incentives”. Econometrica, 55, 303-328.
[9] Fudengerg, D.,B. Holmstrom,P. Milgrom (1990), “Short-term Contracts and Long-term Agency Relationship,” Journal of Economic Theory, 51, 1-31.
[10] Eward P. Lazear (2000), “Performance Pay and Productivity,” The American Economic Review, 90, 1346-1362.
[11] Claudia M. Van Der Heijde, Beatrice I. J. M. Van Der Heijden (2006), “A Competence-Based and Multidimensional Operationalization and Measurement of Employability,” Human Resource Management, 45, 449–476.
[12] Michael S. Weisbach (2006), “Optimal Executive Compensation Vs. Managerial Power,” NBER Working Paper.
[13] Loch, C. H., and Y. Wu (2008), “Social Preferences and Supply Chain Performance: An Experimental Study, Management Science, 54 (11), 1835-1849.
[14] Dreber, A., Fudenberg, D., and Rand, D. G. (2014), "Who Cooperates in Re-peated Games: The Role of Altruism, Inequity Aversion, and Demographics."Journal of Economic Behavior & Organization, 98, 41-55.
[15] Bowles, S., and S. Polania-Reyes (2012), “Economic Incentives and Social Preferences: Substitutes or Complements?”, Journal of Economic Literature, 50 (2), 368-425.
[16] Koszegi, B.(2014), "Behavioral Contract Theory." Journal of Economic Literature, 52 (4), 1075-1118.
[17] Kidd, M., A. Nicholas and B. Rai (2013), “Tournament outcomes and pro-socialbehavior”, Journal of Economic Psychology 39, 387.401.
[18] Erkal, N., L. Gangadharan, and N. Nikiforakis (2011), “Relative Earnings and Giving in a Real-Effort Experiment”, American Economic Review, 101 (3), 3330-3348.
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[20] Riyanto, Y. and J. Zhang (2013), “The impact of social comparison of ability onpro-social behavior”, The Journal of Socio-Economics, 47, 37-46.
[21] Dal Bó, P. and G. R. Fréchette (2011).“The Evolution of Cooperation in Infinitely Repeated Games: Experimental Evidence”, The American Economic Review, 101 (1), 411-429.
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Author Information
  • School of Management, Sichuan University of Science & Engineering, Zigong, China

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  • APA Style

    Zhang Chaoxiao. (2016). Studying on the Relation Between Ability Structure and Incentive Structure Based on a Game Model. Journal of Investment and Management, 5(6), 93-98. https://doi.org/10.11648/j.jim.20160506.11

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    ACS Style

    Zhang Chaoxiao. Studying on the Relation Between Ability Structure and Incentive Structure Based on a Game Model. J. Invest. Manag. 2016, 5(6), 93-98. doi: 10.11648/j.jim.20160506.11

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    AMA Style

    Zhang Chaoxiao. Studying on the Relation Between Ability Structure and Incentive Structure Based on a Game Model. J Invest Manag. 2016;5(6):93-98. doi: 10.11648/j.jim.20160506.11

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  • @article{10.11648/j.jim.20160506.11,
      author = {Zhang Chaoxiao},
      title = {Studying on the Relation Between Ability Structure and Incentive Structure Based on a Game Model},
      journal = {Journal of Investment and Management},
      volume = {5},
      number = {6},
      pages = {93-98},
      doi = {10.11648/j.jim.20160506.11},
      url = {https://doi.org/10.11648/j.jim.20160506.11},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.jim.20160506.11},
      abstract = {A game model is designed to analyze the relation between employee’s ability structure and enterprise’s incentive structure. And some factors’ impaction on incentive structure is analyzed, such as employee’s ability, risk aversion, output error, and product price. The intrinsic mechanism of employee classification according to their ability level is also analyzed. The result reveals that under competitive working environment employee’s ability level should be kept consistent, employee with different ability levels can’t be classified by themselves, and piece rates should be kept direct ratio to employee’s ability level and product’s market trend. Although strict balanced incentive structure comprises of fixed wage and prize or promotion, balanced conditions can not usually be satisfied in real situation, so that fixed wage, piece rate wage, and prize or promotion should be combined to form a suitable proportion structure. Prize or promotion mechanism will strengthen the steepness degree of incentive structure, which will strengthen incentive effect under the condition of employee’s participation restriction.},
     year = {2016}
    }
    

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    AB  - A game model is designed to analyze the relation between employee’s ability structure and enterprise’s incentive structure. And some factors’ impaction on incentive structure is analyzed, such as employee’s ability, risk aversion, output error, and product price. The intrinsic mechanism of employee classification according to their ability level is also analyzed. The result reveals that under competitive working environment employee’s ability level should be kept consistent, employee with different ability levels can’t be classified by themselves, and piece rates should be kept direct ratio to employee’s ability level and product’s market trend. Although strict balanced incentive structure comprises of fixed wage and prize or promotion, balanced conditions can not usually be satisfied in real situation, so that fixed wage, piece rate wage, and prize or promotion should be combined to form a suitable proportion structure. Prize or promotion mechanism will strengthen the steepness degree of incentive structure, which will strengthen incentive effect under the condition of employee’s participation restriction.
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