The Applicability of Information-Revealing Incentive Schemes in Economic Organizations

J. Miller and Peter Murrell , Journal of Comparative Economics 8(3) , 277-289 , September 1984.

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.

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