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Reward schemes

Lagziel, David; Lehrer, Ehud

Authors

David Lagziel



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