Changing bonuses and the resulting effects of employees’ incentives to an inspection game

Abstract

The following paper analyses an intraorganizational conflict in materials management between a manager, a controller and the company management. By using a game theoretic approach, this paper especially seeks to answer the question: ‘Do bonuses change employees’ incentives when the focus is directed at the control level of company management?’ This analysis is based upon an application of a three-person inspection game. Within the three-person game a partial influence of a variation of penalties and bonuses is measured analytically. A simultaneous variation of the bonuses for the subordinated players, as the incentive effect to guarantee rational behaviour, is presented here as a simulation. While different intervals of bonus values, which also affect the payoff of the company management, and their influence on the equilibrium probabilities are examined, it becomes apparent that bonuses are able to neutralize each other in their effect on improved decision-making behaviours of the manager (inspectee) and the controller (inspector). But also a diverse variation leads to positive and negative effects on the manager’s behaviour.