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Instrument-Based vs. Target-Based Rules / Marina Halac, Pierre Yared.
- Format:
- Book
- Author/Creator:
- Halac, Marina.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w24496.
- NBER working paper series no. w24496
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2018.
- Summary:
- We develop a simple model to study rules based on instruments vs. targets. A principal faces a better informed but biased agent and relies on joint punishments as incentives. Instrument-based rules condition incentives on the agent's observable action; target-based rules condition incentives on outcomes that depend on the agent's action and private information. In each class, an optimal rule takes a threshold form and imposes the worst punishment upon violation. Target-based rules dominate instrument-based rules if and only if the agent's information is sufficiently precise. An optimal unconstrained rule relaxes the instrument threshold whenever the target threshold is satisfied.
- Notes:
- Print version record
- April 2018.
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