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American Economic Association

Offers in Organizations Author(s): Robert Gibbons Origin: The Log of Economic Perspectives, Vol. 12, No . 4 (Autumn, 1998), pp. 115-132 Posted by: American Economic Connection Stable LINK: Seen: 26/03/2009 twelve: 39 Your use of the JSTOR store indicates your acceptance of JSTOR's Conditions of Use, available at JSTOR's Terms and Conditions of Use provides, partly, that if you have obtained preceding permission, you might not download a complete issue of any journal or multiple clones of content articles, and you may use content inside the JSTOR store only for your own personal, noncommercial employ. Please get in touch with the author regarding any more use of this work. Author contact information could possibly be obtained at Every single copy of any component to a JSTOR transmission must contain the same copyright notice that appears on the screen or perhaps printed site of these kinds of transmission. JSTOR is a not-for-profit organization founded in 95 to build reliable digital records for scholarship. We work together with the educational community to preserve their work and the materials they trust, and to make a common exploration platform that promotes the discovery and use of these types of resources. To find out more about JSTOR, please speak to [email protected] org.

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doze, Journal of Economic Perspectives-Volume Number4-Fall 1998-Pages 115-132

Offers in Companies

Robert Gibbons

n 1975, StevenKerrpublished" On the Follyof Satisfying WhileHopingfor A, B. " The disagreement was simple: you pay for what you get. Kerrdistilled this kind of unifying topic from a disparate set of examples including politicians, soldiers, doctors, orphanage directors, professors, and students, as well as making and paperwork employees and human-resource managers. From these types of examples, Kerr (pp. 77980) concluded that two main reasons for distorted bonuses are " fascination with an 'objective'criterion, [where] individualsseek to establishsimple, quantifiablestandards against which will to measure and incentive performance" and " overemphasis on remarkably visible behaviours, [when] a lot of parts of the taskare remarkably visiblewhile others are not. " It took organization theory 12-15 years to express Kerr's name, not to mention to evaluate or lengthen his findings. During this period, firm theory was obsessed with the tradeoff between incentives and insurance, although clear-eyed observationslike Kerr's regarding the design and gratification of actual incentive deals suggested that several other problems are at least as significant. Fortunately, new work has had agency theory not only to Kerr'sposition but further than. In this conventional paper I sum up four new strands in agency theory that help me think about offers in real organizations. As being a point of departure, I actually begin with a simple sketch of these agency unit. I then go over static models of objective overall performance measurement that sharpen Kerr's argument; repeated-game models of very subjective performance examination; incentives to get skill development rather than only for effort; and incentive legal agreements between vs . within agencies. I con-

* Robert Gibbons SloanDistinguished is Sloan School, Massachuof Professor Administration, settsInstituteof Technology, Research and National BureauofEconomic Associate, Research, bothin Cambridge, Massachusetts. e-mailaddressis ([email protected] edu). His

116 Journal of EconomicPerspectives

clude by recommending two techniques for further progress in company theory: better integration with organizational economics, as introduced by Coase (1937) and reinvigorated simply by Williamson (1975, 1985), and cross-pollination to fields that study organizations, including professional...

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