The applicability in centrally planned economies of bonus functions that are designed to encourage subordinates to report information honestly is evaluated. If central planners seek Pareto-efficient outcomes, a unique bonus function and therefore a unique distribution of managerial incomes results. Hence, income distribution considerations must be embodied directly in the objective function. However, once such a change in the objective function is introduced, an optimal bonus function can no longer be found.
The Applicability of Information-Revealing Incentive Schemes in Economic OrganizationsJ. Miller and Peter Murrell ,
3( 8 )
Journal of Comparative Economics