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Performance cycles

Author

Listed:
  • David Lagziel

    (Ben-Gurion University of the Negev)

  • Ehud Lehrer

    (Durham University)

Abstract

A decision maker repeatedly exerts efforts to produce new outputs, while being compensated based on his past and current production levels. We show that the decision maker’s optimal strategy dictates a cyclic oscillatory performance whenever the compensation depends on recent past performance. We apply our model to various economic settings such as the delegated portfolio-managers problem, an R &D investment problem, and a dynamic advertising problem.

Suggested Citation

  • David Lagziel & Ehud Lehrer, 2024. "Performance cycles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 77(4), pages 999-1024, June.
    • Handle: RePEc:spr:joecth:v:77:y:2024:i:4:d:10.1007_s00199-023-01516-x
    DOI: 10.1007/s00199-023-01516-x
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    More about this item

    Keywords

    Performance cycles; Performance persistence; Dynamic optimization;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other

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