Incentive Schemes Research Articles

Product Sales Incentive Spillovers to the Lending Market: Evidence from Subprime Auto Loan Defaults

This paper shows how convex incentives in vertical contracts between manufacturers and retailers can induce sales behavior with costs to consumers. We examine this problem in the automotive sector, where manufacturers commonly motivate new vehicle sales through dealer incentive programs with large discrete bonuses determined by monthly sales targets. Using subprime car loans from over 3,500 dealerships, we document high default rates on new car loans originated at the end of the month—the period when dealerships attempt to secure target-based bonuses by intensifying efforts to sell new cars. We provide evidence consistent with the observed higher default rates resulting from customers purchasing new vehicles at month end. New car purchases stretch borrower budgets and expose borrowers to rapid depreciation, which consigns the borrower with negative equity through much of the loan term. Our results imply that the quartile of customers with the highest payment-to-income ratio see default rates increase from 13.6% to 19.7% on the last day of the month. Although consumers bear high costs from increased defaults, we find no evidence that lenders that purchase the loans are hurt by the default increase. Our results demonstrate how the behaviors induced by convex incentive schemes for sales are borne by customers. This paper was accepted by David Simchi-Levi, business strategy. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4935 .

The case study of a city-level business-led household food waste sorting incentive scheme in Nanjing, China.

Economic incentive is thought a good intervention type that can encourage residents to do food waste sorting by many cities' government in China. However, there is a lack of long-term, large-scale study. So the business-led incentive scheme was studied by a case study in Nanjing, China, which focuses on food waste sorting. The results showed that the incentive can encourage at most an average 37% of residents to start and then continue to do food waste sorting regularly. Later, the incentive cannot encourage more even with many non-economic interventions. And most of these participating residents (31%) were encouraged at the first 12months. The results also showed that house price had a negative relationship with the community sorting performance. The comparative study results showed that the community committee must be involved in the non-economic interventions to encourage more residents to take part; otherwise, the company will fail even after many attempts. So the government should apply the incentive policy by dialectical view in food waste sorting. And the incentive scheme should involve all the stakeholders to apply non-economic interventions to encourage more residents to do food waste sorting.

Pay-for-Performance incentives for specialised services in England: a mixed methods evaluation

BackgroundA Pay-for-Performance (P4P) programme, known as Prescribed Specialised Services Commissioning for Quality and Innovation (PSS CQUIN), was introduced for specialised services in the English NHS in 2013/2014. These services treat patients with rare and complex conditions. We evaluate the implementation of PSS CQUIN contracts between 2016/2017 and 2018/2019.MethodsWe used a mixed methods evaluative approach. In the quantitative analysis, we used a difference-in-differences design to evaluate the effectiveness of ten PSS CQUIN schemes across a range of targeted outcomes. Potential selection bias was addressed using propensity score matching. We also estimated impacts on costs by scheme and financial year. In the qualitative analysis, we conducted semi-structured interviews and focus group discussions to gain insights into the complexities of contract design and programme implementation. Qualitative data analysis was based on the constant comparative method, inductively generating themes.ResultsThe ten PSS CQUIN schemes had limited impact on the targeted outcomes. A statistically significant improvement was found for only one scheme: in the clinical area of trauma, the incentive scheme increased the probability of being discharged from Adult Critical Care within four hours of being clinically ready by 7%. The limited impact may be due to the size of the incentive payments, the complexity of the schemes’ design, and issues around ownership, contracting and flexibility.ConclusionThe PSS CQUIN schemes had little or no impact on quality improvements in specialised services. Future P4P programmes in healthcare could benefit from lessons learnt from this study on incentive design and programme implementation.

A tripartite game analysis of industrial structure upgrading and green development of regional economy: A case study of Shanxi Province, China

In the contemporary context, both the upgrading of the industrial structure and the implementation of environmentally sustainable practices within the regional economy have emerged as central avenues for achieving quality development. This study examines the strategic behavior of local governments, capital, and people through the construction of a tripartite evolutionary game model. Subsequently, six different evolutionary stable strategy (ESS) are subjected to a comprehensive analysis. Finally, the parameters influencing the strategic decisions of each party are meticulously examined through simulation. The results of this study can be summarized as follows: First, it is shown that under appropriate conditions, all three entities support the scenario of stable development prospects associated with industrial structure upgrading (1, 1, 1). Second, the strategic choices made by capital and people depend on several factors, including existing profits, future benefits, and the costs associated with transformation. At the same time, local governments show a propensity to adopt incentive strategies. Ultimately, the research underscores the pronounced impact of future benefits, transformation costs, and the probability of success in industrial upgrading on all stakeholders, shaping their evolutionary trajectories and results. In particular, the probability of successful industrial structure upgrading exerts the greatest influence on evolutionary trajectories, while the possibility of government imposing carbon taxes and initial willingness primarily determine the evolutionary trajectory. This paper attempts to provide a new perspective on industrial structure upgrading and green development of the regional economy by combining evolutionary game theory and scenario analysis methods to promote the process of industrial structure upgrading and sustainable development.

State Ownership and Corporate Social Responsibility: An Investigation on Nigerian Data

Purpose: The paper examines the central issue underpinning the growing international literature and arguments that different ownership types have varying implications for a firm’s CSR engagement. It compliments evolving studies by looking at the effect of state ownership and other types of ownership structures on CSR, specifically in the Nigerian industry. It is argued that the impact of ownership structure on corporate decisions to allocate resources to Corporate Social Responsibility (CSR) has assumed renewed significance in the burgeoning literature of developing economies, given the exigency for corporate executives to allocate firm specific resources to other social objectives that may detract from profit maximization.
 Methodology: This paper differs markedly from the methodologies of previous studies which used composite CSR indices. It deconstructs CSR expenditure into five categories – public goods, socially desirable goods, corporate philanthropy, employee relations and environmental conservation – and estimates the effects of government, foreign and institutional ownership on CSR variables controlling for such factors as firm size, return on assets and capital intensity. Using new data on listed Nigerian firms, this paper carries out its empirical investigation with panel data estimation in order to deal with heterogeneity and endogeneity issues.
 Findings: The findings of this paper indicate that different ownership structures have varying implications for the five forms of CSR investigated in this study. It reveals that government ownership has no significant effect on CSR expenditure on public goods, corporate philanthropy and environmental conservation. However, it finds that government ownership also significantly influences CSR expenditure on socially desirable goods and employee relations.
 Unique contribution to theory, practice and policy:Theoretically, this paper extends the trajectory of CSR discourse to include an elaborate investigation of the impact of ownership structures on CSR practices in all the major sectors of Nigerian economy.The paper argues that its empirical results have several policy implications for good corporate governance practices in Nigeria and other emerging economies. This paper suggests the need to institute incentives schemes and regulatory constraints that would compel government, foreign and institutional ownership to align their incentives with some forms of CSR practices.

Dual water-electricity cooperation improves economic benefits and water equality in the Lancang-Mekong River Basin

Transboundary river cooperation provides an effective pathway to maintain regional security and sustainable development; however, its implementation is a pressing and prominent concern due to lack of appropriate compensation measures and effective incentive strategies. Here we develop a dual water-electricity cooperation (DWEC) framework that combines water and electricity trading to meet the often-conflicting demands of participating countries. The results from the Lancang-Mekong River Basin reveal that substantial benefits in both economic and social aspects can be achieved through coupling regional water and electricity trades. Economic benefits can be obtained by expanding cooperation space and thereby greatly improving the willingness of countries to participate in basin-wide cooperation. Electricity trading plays a key role in loss compensation for water exporters, ensuring no loss for any party and maximizing basin-wide benefits. Furthermore, the DWEC improves regional water use equality, especially in water shortage periods when there is severe competition among water users. The proposed cooperation framework provides a viable way to implement cooperation in transboundary river basins.

Optimal incentive strategy in blockchain-based mobile crowdsensing using game theory

Mobile crowdsensing (MCS) is a cutting-edge technology that leverages the computing power of mobile devices to gather environmental data, efficiently utilizing underutilized resources to complete sensing tasks. However, the lack of initiative and motivation among participants in existing MCS systems is a crucial factor limiting its development. As a result, examining the incentive mechanism in MCS becomes essential for attracting a greater number of participants to join. In addition, existing MCS systems typically employ a centralized platform, but this structure poses security issues, as the platform can manipulate MCS operations to gain inappropriate profits and is prone to single point of failures. In response to the above-mentioned issues, this paper proposes a novel blockchain-based MCS system, referred to as CrowdBS. Firstly, the system adopts a decentralized structure and distributed consensus methods to enhance the reliability and security of the system. Additionally, the use of smart contracts allows the system to automatically execute predefined operations without the need for human intervention. In MCS, this means that it can automatically trigger operations such as data collection, reward distribution, task assignment, etc., thereby improving efficiency and reducing the risk of human intervention. Secondly, the system introduces a two-stage Stackelberg game model, attracting more sensing users to participate in tasks through reasonable incentive mechanisms and ensuring fairness in reward distribution, thereby promoting efficient, reliable, and sustainable execution of crowdsensing tasks. Finally, the correctness of the model is verified through simulation experiments, and compared with the existing MCS system. The comparison results show that the system and its incentive mechanism have more comprehensive advantages in terms of reliability, security and performance.

Oil price movements and agricultural production from heterogeneous sub‐sectors: Analysing the Dutch disease in an African resource‐rich economy

AbstractThe economy of a developing country like Nigeria has evolved from a strong dependence on agricultural exports in the 1960s to an unhealthy reliance on crude oil exports. This has led to a large agricultural trade deficit that requires a better understanding of the dynamic relationship between oil price booms and agricultural production. To this end, the study not only isolates the effect of oil price movements on agricultural production from heterogeneous sub‐sectors in Nigeria but also tests for Dutch disease symptoms using annual data from 1970 to 2019. Employing the auto‐regressive distributed lag (ARDL) cointegration and dynamic simulations as well as dynamic Granger causality techniques, the study shows that in the long run, oil price booms affect the food sector and the livestock sector heterogeneously. An increase in the oil price undercuts the production performance of the food sector. Also, because of the strong linkage between domestic livestock production and the global livestock market, an increase in domestic production has a weak predictive content for oil price booms. The policy implications of these findings include the sterilization of oil revenues outside the country and collaboration with foreign investors to provide much‐needed investment in the agricultural sector through various incentive schemes.

The impact of market design and clean energy incentives on strategic generation investments and resource adequacy in low-carbon electricity markets

Well-designed electricity markets play a crucial role in maintaining reliable electric power systems, which are critical in modern society. This study examines the impact of different electricity market designs and clean energy incentive schemes on supporting renewable energy integration and achieving clean energy goals. To this end, we utilize a game-theoretical generation expansion planning model where generation companies make investment and retirement decisions to maximize their expected profit. The model is structured as an equilibrium problem with equilibrium constraints (EPEC) and solved using a diagonalization approach combined with progressive hedging. We analyze three types of electricity market designs: an energy-only market, a capacity market, and a clean energy market, and consider a wide range of market parameters resulting in 14 total scenarios. Wind and solar capacity comprise the majority of new investments in all considered scenarios, but the resultant system planning reserve margin (PRM) can differ significantly depending on market parameters. We also find that profit-driven investments lead to lower PRMs than a traditional system cost minimization approach. These individual scenario results further demonstrate how different market designs and clean energy incentive schemes may influence investor decision-making and impact resource adequacy throughout the clean energy transition.

Incentive strategy of dual innovation balance in green manufacturing innovation ecosystem: Based on hierarchical structure of innovation subject.

Exploratory innovation is a pivotal way to seize future opportunities in green manufacturing innovation ecosystems, and exploitative innovation is conducive to expanding existing markets and resources, so it is essential to discuss the balanced incentive strategy of dual innovation for the sustainable development of ecosystems. Based on the hierarchical structure, this paper divides the core subjects in the green manufacturing innovation ecosystem into the application layer, the support layer, and the scientific research layer, constructs the differential game model of the no-incentive scenario, the cost-sharing scenario, and the collaborative scenario, and discusses the incentive strategies of the three types of subjects and the ecosystem in the evolution process of the dual innovation balance. The conclusions are as follows: (1) The level of dual innovation balance effort of the three types of subjects decreases with the increase of resource costs and environmental construction costs and increases with the increase of innovation balance capacity; (2) Cost sharing from the application layer to the support layer and the scientific research layer can enhance the effort level of both, which in turn enhances the optimal benefits for the three types of subjects and the ecosystem as a whole; (3) In the collaborative scenario, the level of effort and total ecosystem benefits of the innovation balance of the three types of subjects are strictly better than in the no incentive scenario, and the Pareto-optimality of the three subjects and the ecosystem will be realized after the coefficients of the distribution of benefits among the three types of subjects are determined. Based on this, this paper puts forward specific suggestions for the optimization of the structural relationship of the innovation body hierarchy, the exploitation of green manufacturing resources, and the macro-planning of the management department.

Stakeholder perceptions of the benefits and barriers of implementing environmental management systems in the Maldivian construction industry

Unprecedented increases in both tourism and population growth have put extreme pressure on the Republic of the Maldives, which has resulted in significant changes to the islands as a result of construction activities. This study is the first to investigate perceptions of the benefits and barriers of implementing environmental management systems (EMS) in the Maldivian construction industry, and what effective measures and strategies exist to drive environmental management practices. A subjectivist stance and deductive approach have been taken with an online survey adopting a quantitative strategy with a range of construction professions across the Maldivian construction sector. Using a central tendency measure of weighted average, the respondents’ opinions suggest that the primary benefits of having an EMS in the Maldives are perceived as the enhancement of corporate image and environmental protection; while the major barriers are lack of legal enforcement and the requirement for company structures and policies to change to accommodate an EMS. The findings also suggest that those companies who establish a waste management plan and where authorities enforce legal environmental requirements are believed to be the most effective means to encourage more widespread adoption. Based on these findings, it is recommended that managers, need to increasingly promote the principles of environmental management and sustainable practices/behaviours amongst construction industry stakeholders. Furthermore, policy makers within the Maldives should be exploring the viability of establishing financial incentive schemes (particularly for SMEs), in addition to encouraging wider adoption of EMSs across the Maldivian industry sectors.

Research on Sustainable Development of Food Systems Based on Data Mining Technology

With the progress of society, the problem of people's food and clothing has been basically solved, but the unbalanced development makes the level of sustainability of the food system incompatible with the level of modern technological development. Based on SPSS, MATLAB, and PYTHON computing software and data mining techniques such as factor analysis and time series analysis, this paper constructs a food system security evaluation index system and gives the contribution rate of each index to the efficiency, effectiveness, equity, and sustainability of the food system security. A linear programming model favoring the sustainable development of the food system was constructed, and the incentive strategy for sustainable development was given according to the load of sustainable development factors. The validity and feasibility of the model were tested.

Supplier goal commitment in performance-based contracts: the lens of goal-setting theory

PurposeThis study aims to empirically test the effects of key characteristics of performance-based contracting (PBC) (i.e. reward/payment scheme, increased supplier autonomy and transfer of responsibilities) on supplier goal commitment.Design/methodology/approachThis study developed a conceptual model applying goal-setting theory (GST), expectancy theory (ET) and job characteristics theory (JCT). Survey data were collected and analyzed using structural equation modeling (SEM) to establish a validated measurement instrument for testing the hypotheses.FindingsThe findings revealed that PBC positively affects supplier goal commitment due to its unique characteristics, which translates into improved supplier performance. Furthermore, this study validated the mediating role of goal alignment and felt accountability operating between PBC characteristics and supplier goal commitment.Research limitations/implicationsThis study explored the buyer–supplier relationship from the supplier's standpoint. Using a more inclusive data set, future research may involve a dyadic analysis and focus on the effects of the following factors on the supplier goal commitment: relational aspects (e.g. trust and collaboration), the risk transfer from the buyer to the supplier, different incentive schemes and successful PBC implementation factors.Practical implicationsThis study presents new, validated insights for contract selection, design and management. It underlines the importance of choosing the proper contract, having the appropriate contract design based on the desired outcomes and effective contract management by exhibiting the psychological/behavioral effect of fundamental PBC characteristics.Originality/valuePBC represents an active research stream, but its psychological/behavioral implications are understudied. Therefore, this research puts forth a conceptual framework with multiple testable hypotheses illustrating the relationship between PBC and supplier goal commitment.

Should the police give priority to violence within criminal organizations? A personnel economics perspective

AbstractEven among themselves, criminals are not seen as trustworthy. Consequently, a criminal organization needs to incentivize its members, either by threats of violence or by rewarding good behavior. The cost of using violence depends on the resources police allocate to investigating intraorganizational violence. This means that the police may affect the choice of an incentive scheme by the criminal organization. The design of the optimal strategy for crime control has to take this into account. We develop a model of an infinitely repeated criminal labor market where (i) a criminal organization hires and incentivizes members, and (ii) peripheral crime (crime outside the criminal organization) is a stepping stone to a career in organized crime. We establish that there are two possible optimal strategies for the police. (i) There are situations in which the optimal strategy for the police is to use all of their resources to decrease the efficiency of criminals. (ii) In other situations, the optimal strategy for the police is to spend the minimum amount of resources to ensure that the criminal organization cannot punish disloyal criminals, and spend the rest of their resources to decrease the efficiency of criminals.

Mapping opportunities for the use of land management strategies to address fire risk in Europe

Many parts of Europe face increasing challenges managing wildfires. Although wildfire is an integral part of certain ecosystems, fires in many places are becoming larger and more intense, driven largely by climate change, land abandonment, and changes in fuel management with important socioeconomic, environmental, and ecosystem services consequences for Europe. In order to envision a comprehensive fire risk mitigation strategy for Europe, a spatial assessment of opportunities to manage fuels at the landscape-scale is needed. Our study explored the suitability of three land management strategies (LMS)—herbivory, mechanical fuel removal, and prescribed burn—which can create more heterogenous fuelscapes, thereby reducing an element of fire risk. We created suitability maps for each of the LMS using adoption factors identified in a systematic literature review (n = 123). We compared these maps with areas of historical fire occurrence as a proxy for fire risk to prioritize key areas for intervention. We found that over a quarter of Europe was suitable for multiple LMS within areas of greater fire risk, creating opportunities for concurrent and synergistic use of the strategies. Options were more limited in areas of southern Europe, where prescribed burn was found to be uniquely viable amongst the LMS evaluated. Opportunities were also restricted in some areas of high fire risk in northern Europe, where herbivory was found to be the only suitable LMS. Our findings take a wide-view of fuel management to target landscape-scale decision making focused on reducing fire risk. However, many other factors must be taken into account to successfully manage fuels at local scales, including the socio-cultural appropriateness of the LMS, the viability of incentive schemes, and possible trade-offs with other management goals, such as carbon storage and biodiversity.

A Study of the Incentive Theory Embodied in the Operation Process of "Haidilao"

This paper examines the issue of motivation theory embodied in the operation process. Taking Sichuan Haidilao Company as the object of study, the paper examines the use of motivation theory in management to analyse and outlook on Haidilao's operation mode, and puts forward rationalised suggestions. The core of an enterprise's development lies in the cultivation of talents, and scientific motivation theory, "people-oriented" and valuing employees, is favorable to enhancing employee engagement and increasing the company's development benefits in order to create a situation that is profitable for both parties. In order to adapt to the changing and complex competitive market environment, the incentive theory of Haidilao should be determined from a variety of directions and different areas to determine the incentive scheme and countermeasures. However, in order to maximise the company's benefits, the most important thing is for the managers of the company to pay attention to and motivate the talents. Companies should develop their own incentive schemes to suit their employees, to stimulate their efficiency and to promote their rapid development, according to their own development and the changing environment of market competitiveness.

Who bears the risk? Incentives for renewable electricity under strategic interaction between regulator and investors

Energy policies for promoting investment in renewable energy sources have become crucial for deploying green energy technologies worldwide. Conventional incentive systems assign risk to either policymakers or investors. In this paper, we combine option theory and game theory to obtain optimal parameters for incentive schemes with different degrees of risk-sharing. We present an empirical application to the Spanish electricity market for 2013, when the Feed-in Tariff scheme was still in force, and for 2019, when Feed-in Tariffs had been completely phased out but before the demand shock caused by COVID-19, the restructuring of market price limits, and the recent energy price crisis in Europe. Our results indicate that there are more flexible systems based on Fixed Tariffs and Premiums that can outperform conventional designs, since they may enable the same investment level to be reached at a lower regulatory cost. In addition, these hybrid schemes permit risk-sharing between both parties. Our results may also be useful for designing incentives awarded through competitive auctions.

To Achieve Goal Alignment by Inter-Organizational Incentives: A Case Study of a Hydropower Project

Although the use of incentives has been widely recognized as an effective project management tool, its application still needs specific exploration. Existing research on incentives mainly focuses on intra-organizational incentives, lacking systematic research with empirical evidence from the perspective of the inter-organizational level. To fill this research gap, this study conducted an in-depth investigation into the application and impacts of inter-organizational incentives by studying a typical case of a hydropower project. In this case, a series of innovative inter-organizational incentives, involving a multiple contractual incentive scheme concerning schedule, quality, safety, as well as environmental performance, is applied. Using a mixed methodology that included a document review, a questionnaire survey, and interviews, this case study revealed that inter-organizational incentives could effectively help promote goal alignment, stimulate cooperative inter-organizational relationships, and improve project performance. This research developed a novel classification of inter-organizational incentives and emphasized the importance of non-contractual and informal incentives, which were ignored in previous research. The results further highlight that while incentivized organizations generally value incentives according to their monetary intensity, their prioritization of goals is determined by various factors. Therefore, to achieve project goal alignment, the optimization of incentive schemes should comprehensively consider a variety of influencing factors rather than merely focusing on monetary intensity. These findings will help both academic researchers and industrial practitioners design and execute effective inter-organizational incentives for superior project performance, especially for those projects that pursue high sustainable performance with safety and environmental performance included.

Logistics chain responsiveness to war impacts: A case study in North Adriatic Region

The Russian-Ukraine conflict outbreak abruptly interrupted the sea-road intermodal service which provided some metal companies in the Italian region of Friuli Venezia Giulia with semi-finished steel products coming from the Ukrainian port of Mariupol. Those companies were then forced to find an alternative supply source to feed their production system, which entailed the arrival of oceanic vessels with a greater cargo load, but at a lower frequency. Such changes implied significant consequences both on the maritime and the land side and requested the employment of trucks, train and barges to transfer the increased volume of goods. Moreover, those variations generated additional costs for all the involved operators, threating the survivability of the whole supply chain and, thus, of an important share of the regional economy. In this paper, a methodology combining process modelling and quantitative analysis has been applied, first, to gain an in-depth understanding of the case study and then, to suggest modifications to existing policies. Such investigation techniques enabled, on one hand, to identify process bottlenecks and, on the other hand, to examine infrastructural and financial consequences for each considered transport mode. Results revealed the need of adjusting the current strategic vision especially with reference to the development of the infrastructural networks, the introduction of incentive schemes and the availability of skilled people operating in logistics. The proposed lines of action are meant to foster the resilience of the analysed supply chain at economic, environmental and social level.

FedAB: Truthful Federated Learning With Auction-Based Combinatorial Multi-Armed Bandit

Federated Learning (FL) emerges as a new distributed machine learning (ML) paradigm that enables thousands of mobile devices to collaboratively train ML models using local data without compromising user privacy. However, the FL learning quality highly relies on the data contribution from the distributed mobile devices. Therefore, a well-designed incentive mechanism with effectiveness, fairness, and reciprocity is in urgent need to guarantee the stable participation of users. In this paper, we propose FedAB, an incentive and client selection strategy based on a novel multi-attribute reverse auction mechanism and a combinatorial multi-armed bandit (CMAB) algorithm. First, we develop a local contribution evaluation method based on importance sampling in the FL context. We then design a novel payment mechanism that is able to preserve individual rationality and incentive compatibility (truthfulness). At last, we design a UCB-based winner selection algorithm that is proven to achieve the server’s utility maximization with fairness and reciprocity. We have conducted extensive experiments on real datasets. The results demonstrate the superiority of FedAB, with a 10-50% improvement in total reward, final accuracy, and convergence speed compared to state-of-the-art solutions.