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Setting Efficient Incentives for Agricultural Research: Lessons from Principal-Agent Theory

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  • Huffman, Wallace
  • Just, Richard E.

Abstract

A conceptual analysis of important issues in the organization and management of academic research is presented. Principal-agent theory is applied to derive optimal compensation schemes for scientists when they differ in ability, risk aversion, cost of effort, and reservation utility, and to show the optimal trade-off between institutional risk and scientists' abilities. Implications for an efficient organization of research are derived, including how scientists' incentives should be structured to elicit optimal research efforts and direction, whether research direction should be centralized or decentralized, and whether the organization of research should be through external competitive grants or program and institutional funding.

Suggested Citation

  • Huffman, Wallace & Just, Richard E., 2000. "Setting Efficient Incentives for Agricultural Research: Lessons from Principal-Agent Theory," Staff General Research Papers Archive 5040, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:5040
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    1. Steven D. Levitt, 1995. "Optimal Incentive Schemes When Only the Agents' "Best" Output Matters to the Principal," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 744-760, Winter.
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