Economics Seminar (2021-01)

Topic: A/B Contracts

Speaker: Michael Powell, Kellogg School of Management

Time: Jan. 8, Friday. 09:00a.m.- 10:30a.m. Beijing Time

Location: Microsoft Teams Online Conference Room Join the meeting

Abstract:

This paper aims to improve the practical applicability of the classic theory of incentive contracts under moral hazard. We establish conditions under which the information provided by an A/B test of incentive contracts is sufficient for answering the question of how best to improve a status quo incentive contract, given a priori knowledge of the agent’s monetary preferences. We assess the empirical relevance of this result using data from DellaVigna and Pope’s (2017) study of a variety of incentive contracts. Finally, we discuss how our framework can be extended to incorporate additional considerations beyond those in the classic theory.

Introduction:

Michael Powell received his PhD in Economics from the Massachusetts Institute of Technology in 2011. He is currently an Associate Professor in the Strategy Department. Prior to coming to Kellogg, he was a Postdoctoral Fellow of Applied Economics at the Sloan School of Management at MIT. Professor Powell's research interests are in organizational economics and more specifically, theoretical work on dynamic organizational design and on firm boundaries. He is a co-editor at Journal of Law, Economics, and Organization.

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