Performance Incentives and Planning Under Uncertainty
Dean of the Faculty, United States Air Force Academy, 1976 - Incentives in industry - 29 pages
The report discusses the use of the performance incentive function (PIF) by planning organizations when there is subjective or objective uncertainty. It is proved that a PIF can be constructed which achieves both allocational and distributional optimality, when there is subjective uncertainty about the conditions of production and both the center and the producer are risk averse. When there is objective uncertainty, however, it is shown that it is not, in general, possible for the center to achieve these two objectives simultaneously.
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achieves both allocational adjustment function adjustment rule allocational and distributional allocational condition allocational efficiency allocational optimality amount of profits behavior benefit function center is risk certainty choose an optimal condition at t2 conditions 45 costs at t2 direct controls distributional condition distributional goals simultaneously economic planning efficiency and distributional equation ex-post distributional optimality expected utility given GREGORY G guarantee Incentive Contracting insured linear sharing rule lump sum transfer MAJOR GREGORY G NTIS º º objective uncertainty optimal allocation optimal PIF optimal production decisions optimal rent sharing optimal sharing rule output level partial derivatives performance incentive function PIF at tl PIF's producer at t2 random variable reaction functional reflecting the center's rent sharing function rent sharing rule risk averse risk neutrality risk tolerance functions rule is linear satisfied societal profits specify a PIF U.S. Department uncertainty at t2 upns welfare weights Wilson yields