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Incentivizing centrally regulated units to improve performance: Pitfalls and requirements

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  • Mohsen Afsharian
  • Heinz Ahn
  • Emmanuel Thanassoulis

Abstract

This paper explores the foundations for developing incentives for influencing units operating within centrally managed organizations. We begin by laying out the theory of managerial control in principal-agent contexts and draw from the incentive mechanisms developed in the related field of economic regulation. In particular, we highlight issues, differences and similarities in three recently proposed approaches under these circumstances, not only to compare them, but more importantly to motivate and arrive at requirements that should be met by incentivization systems in centrally managed multi-unit organizations. The stipulated requirements are not intended to be exhaustive but rather aim at defining conceptual foundations for further discussions and encouraging avenues for future research in this field. Our investigations are supported by graphical examples and an analysis of empirical data from banking.

Suggested Citation

  • Mohsen Afsharian & Heinz Ahn & Emmanuel Thanassoulis, 2024. "Incentivizing centrally regulated units to improve performance: Pitfalls and requirements," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 75(2), pages 395-409, February.
    • Handle: RePEc:taf:tjorxx:v:75:y:2024:i:2:p:395-409
    DOI: 10.1080/01605682.2023.2197931
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    Cited by:

    1. Afsharian, Mohsen & Kamali, Sara & Ahn, Heinz & Bogetoft, Peter, 2024. "Individualized second stage corrections in data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 317(2), pages 563-577.

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