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Thursday, May 11, 2006

High-Powered Incentives (from An Economist in Paradise)

Yes, it's been a while, and I've been terrible about posting. I still have a couple of exams to grade, and all the "taking leave" stuff that goes with changing schools. Hopefully, by next week everything will be graded, my paperwork will be done, my huse will be on the market, and I'll be able to catch up on my blogging.

In the meantime, I've been saving stuff for later usage. Here's one from the recent archives: a very nice piece by Fazeer Sheik Rahim of An Economist in Paradise. In it, he explains how the principal-agent model and incentives explain a number of things he saw on his recent vacation:
I was determined to leave my econ hat behind on my first ever week-end in a five-star hotel in Mauritius. I forced myself not to try to explain why the samosas were not quite as good as those in the Quatre-Bornes market. I tried hard not to think of the reasons why Mauritian residents pay subtantially less than tourists for the night. But when I realised that my waterski instructor was more interested in selling me kitesurfing and snorkelling packages (operated by his freelance mate) rather than actually teaching me how to waterski (included in my hotel package), I gave up. The principal-agent model is key to understanding the problem of incentives.
Click here for the whole thing - in one short piece he touches on doctors, windsurfing instructors, executive compensation, and samosas. Very nice. I just came across his blog, but it looks promising, and definitely worth a further look.

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