Correlation neglect, incentives, and welfare
Abstract
We modify the Holmström–Milgrom model by letting the agent neglect the correlation between performance measures. Whenever true and perceived correlation are sufficiently low, correlation neglect enhances material welfare and expected profit. Otherwise, material welfare diminishes, and the agent may...
Paper Details
Title
Correlation neglect, incentives, and welfare
Published Date
Jul 1, 2020
Journal
Volume
192
Pages
109171 - 109171
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