Weitzman, M. L. (1980). The “ratchet principle” and performance incentives. The Bell Journal of Economics, 302-308.

This paper is one of the auxiliary materials for Studies on Economic Transition and Economic Systems, but how interesting it is to find that this, one of the very first papers to address the dynamic incentive problems of an organization, actually stems from studies of the Soviet Union and Central/Eastern Europe. I thought that since many enterprises have and still employ such a ratchet principle – look at the slavery system depicted in Twelve Years a Slave – a paper addressing this would have had its roots in capitalism or possibly older production systems, and questions that entail them. Here is an excerpt from Solomon Northup’s 1853 memoir:

The day’s work over in the field, the baskets are “toted,” or in other words, carried to the gin-house, where the cotton is weighed. No matter how fatigued and weary he may be—no matter how much he longs for sleep and rest—a slave never approaches the gin-house with his basket of cotton but with fear. If it falls short in weight—if he has not performed the full task appointed him, he knows that he must suffer. And if he has exceeded it by ten or twenty pounds, in all probability his master will measure the next day’s task accordingly. So, whether he has too little or too much, his approach to the gin-house is always with fear and trembling.

I really think the problem of incentives and organizations is what gears me to this profession.

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