Reward schemes

Lagziel, David; Lehrer, Ehud

Abstract

An investor has some funds invested through portfolio managers. By the end of the year, she reallocates the funds among these managers according to the managers' performance. While the investor tries to maximize her subjective utility (that depends on the total expected earnings), each portfolio manager tries to maximize the overall amount of funds bestowed in his hands to manage. A reward scheme is a rule that determines how funds should be allocated among the managers based on their performance. A reward scheme is optimal if it induces the (self-interested) managers to act in accordance with the interests of the investor. We show that an optimal reward scheme exists under quite general conditions.

Citation

Lagziel, D., & Lehrer, E. (2018). Reward schemes. Games and Economic Behavior, 107, 21-40. https://doi.org/10.1016/j.geb.2017.10.019

• Journal Article Type: Article
• Online Publication Date: Nov 6, 2017
• Publication Date: 2018-01
• Deposit Date: Aug 16, 2023
• Journal: Games and Economic Behavior
• Print ISSN: 0899-8256
• Electronic ISSN: 1090-2473
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 107
• Pages: 21-40
• DOI: https://doi.org/10.1016/j.geb.2017.10.019
• Keywords: Economics and Econometrics; Finance
• Public URL: https://durham-repository.worktribe.com/output/1719701