Incentivizing centrally regulated units to improve performance: Pitfalls and requirements

This paper explores the foundations for developing incentives for influencing units operating within centrally managed organizations. We begin by laying out the theory of managerial control in principal-agent contexts and draw from the incentive mechanisms developed in the related field of economic...

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Bibliographic Details
Published in:The Journal of the Operational Research Society 2024-02, Vol.ahead-of-print (ahead-of-print), p.1-15
Main Authors: Afsharian, Mohsen, Ahn, Heinz, Thanassoulis, Emmanuel
Format: Article
Language:English
Subjects:
central management
Data envelopment analysis
incentive regulation
incentivization mechanism
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Summary:This paper explores the foundations for developing incentives for influencing units operating within centrally managed organizations. We begin by laying out the theory of managerial control in principal-agent contexts and draw from the incentive mechanisms developed in the related field of economic regulation. In particular, we highlight issues, differences and similarities in three recently proposed approaches under these circumstances, not only to compare them, but more importantly to motivate and arrive at requirements that should be met by incentivization systems in centrally managed multi-unit organizations. The stipulated requirements are not intended to be exhaustive but rather aim at defining conceptual foundations for further discussions and encouraging avenues for future research in this field. Our investigations are supported by graphical examples and an analysis of empirical data from banking.
ISSN:0160-5682
1476-9360
DOI:10.1080/01605682.2023.2197931