Setting efficient incentives for agricultural research: Lessons from principal-agent theory

A conceptual analysis of important issues in the organization and managemen t of academic research is presented. Principal-agent theory is applied to d erive optimal compensation schemes for scientists when they differ in abili ty, risk aversion, cost of effort, and reservation utility, and to show the optimal trade-off between institutional risk and scientists' abilities. Im plications for an efficient organization of research are derived, including how scientists' incentives should be structured to elicit optimal research efforts and direction, whether research direction should be centralized or decentralized, and whether the organization of research should be through external competitive grants or program and institutional funding.