Faculty & Research

Canice Prendergast

W. Allen Wallis Professor of Economics

Phone :
1-773-702-9159
Address :
5807 South Woodlawn Avenue
Chicago, IL 60637

Canice John Prendergast is the author of "The Limits of Bureaucratic Efficiency" published in the Journal of Political Economy in 2003 and "The Tenuous Trade-Off Between Risk and Incentives" that appeared in the Journal of Political Economy in 2002. Prendergast is widely published, with work appearing in the Economic Journal, the Journal of Labor Economics, the American Economic Review, the Journal of the Japanese and International Economics, and the European Economic Review. Articles on his recent research have appeared in Fortune Magazine, the Financial Times, the Economist, and Der Spiegel.

He joined the Chicago Booth faculty in 1990. Prior to that, he was an Open Prize Research Fellow at Nuffield College in Oxford, a lecturer at Jesus College in Oxford, and a research assistant at the Economic and Social Research Institute in Dublin.

Prendergast has worked as the editor of the Journal of Political Economy and the Journal of Labor Economics. In addition to being a 1995 Ladany Scholar at Chicago Booth, he is the recipient of two National Science Foundation Awards. He is also an elected faculty research fellow of the National Bureau of Economic Research.

He attended Trinity College in Dublin where he received a bachelor's degree in economics in 1983. In 1986, he graduated from the London School of Economics with a master's degree in economics, followed by a PhD in economics from Yale University in 1989.

 

2013 - 2014 Course Schedule

Number Name Quarter
33032 Managing the Workplace 2014 (Spring)
33032 Managing the Workplace 2014 (Summer)

2014 - 2015 Course Schedule

Number Name Quarter
33032 Managing the Workplace 2015 (Spring)

Other Interests

Art, soccer.

 

"The Motivation and Bias of Bureaucrats," American Economic Review (2007).

"The Limits of Bureaucratic Efficiency," Journal of Political Economy (2003).

"The Tenuous Trade-Off Between Risk and Incentives," Journal of Political Economy (2002).

With Lars Stole, "Impetuous Youngsters and Jaded Oldtimers," Journal of Political Economy (1996).

With Robert Topel, "Favoritism in Organizations," Journal of Political Economy (1996).

For a listing of research publications please visit ’s university library listing page.

New: Barter Relationships
Date Posted: Feb  18, 2014
We offer a simple economic model of repeated barter to explore current economic exchange in Russia: individuals trade with each other in a dynamic environment where the threat of dissolving the relationship constrains the incentives to cheat. We show how the value of future interactions affects the willingness of individuals to trade with each other; only when rates of interaction are large can trust compensate for an absence of money. Moreover, when trading relationships are asymmetric – either in the trading partners' values for each other's goods or in their relative bargaining power – the resulting barter allocations are distorted, as goods must be used for liquidity reasons. When third-party middlemen exist who can facilitate barter, they command a premium for their services, and have preferences for improved liquidity which may or may not correspond with the other traders in the barter economy. Fourth, we demonstrate that the restriction of trading to tight trading networks may ...

New: The Non-Monetary Nature of Gifts
Date Posted: Feb  15, 2014
This paper addresses the prevalence of non-monetary gifts over more highly valued and efficient monetary transfers in social relationships. We demonstrate that under a wide variety of circumstances, inefficient non-monetary gifts will be offered by a donor in lieu of cash in order to signal the donor's quality of information about the recipient's preferences. This result emerges because gift giving is inefficient relative to cash, and not because of any arbitrary assumptions regarding communication. In particular, the donor has available the strategy of offering cash and saying what he would have purchased. Nonetheless, there is still an important equilibrium role for buying gifts.

New: Restricting the Means of Exchange within Organizations
Date Posted: Feb  15, 2014
This paper considers why firms often ban monetary exchange between their employees, while encouraging these trades through other means, such as through the reciprocation of favours or barter. Despite classical inefficiencies associated with non-monetary exchange, we illustrate two themes as to why non-monetary trade may be preferred to allowing money. First, the use of non-monetary trade may affect the allocation of rents in surplus-enhancing ways, as agents respond strategically to the existence of these rents. Second, non-monetary trade improves the ability of agents to impose sanctions on those who act dishonestly.

New: Monetizing Social Exchange
Date Posted: Feb  15, 2014
We address the role of monetizing trades in an environment when reciprocal trade acts as the alternative means of exchange and opportunism is possible. We illustrate that money has three roles: (i) money enable trade on contractible goods, (ii) money aids trade in non-contractible goods through the use of voluntary transfers, and (iii) money possibly induces inefficient pricing and production decisions. We show a number of cases where allowing trades to be monetized reduces welfare and also illustrate how an inefficient instantaneous means of exchange can sometimes increase trade more than pure money. Finally, analogous to the role of barter in facilitating efficient exchange, we illustrate that otherwise classically inefficient restrictions on trading may have a similar desirable effect.

Investigating Corruption
Date Posted: Dec  14, 2004
Why incentive contracts and independent investigations may not be the perfect solution to the problem of bureaucratic corruption. Agency theory has had little to say about the control of bureaucratic corruption, perhaps the greatest agency problem that exists. Prendergast considers the role of incentive contracting in reducing corruption through the use of independent investigations - a common way to monitor corruption. In simple settings, bureaucratic corruption can be suppressed by rewar

Barter, Liquidity and Market Segmentation
Date Posted: Sep  01, 2004
This paper explores the private and social benefits from barter exchange in a monetized economy. We first prove a no-trade theorem regarding the ability of firms with double-coincidences-of-wants to negotiate improvements in trade among themselves relative to the market outcomes. We then demonstrate that in the presence of liquidity shocks, introducing a non-monetary exchange avoids this limitation and enhances trade by (1) generating liquidity and (2) by segmenting the market place into low-de

Consumers and Agency Problems
Date Posted: Feb  28, 2004
Consumers solve many agency problems, by pointing out when they believe that agents have made mistakes. I consider the role that consumers play in inducing efficient behaviour by agents. I distinguish cases where consumers have similar preferences to the principal, from those where they diverge. In the former case, allowing consumer feedback improves allocations, and increasing consumer information is unambiguously beneficial. Where consumers disagree with principals over desired outcomes, which

The Limits of Bureaucratic Efficiency
Date Posted: Oct  01, 2003
Bureaucracies tend to be used when consumers cannot be trusted to choose outcomes efficiently. But a primary means of bureaucratic oversight is consumer complaints. But this can give bureaucrats an incentive to inefficiently accede to consumer demands to avoid a complaint. I show that when this incentive is important, bureaucracies (efficiently) respond by (i) ignoring legitimate consumer complaints, (ii) monitoring more in situations in which it is not needed, (iii) delaying decision making "to

Contracts, Externalities and Incentives in Shopping Malls
Date Posted: Jan  14, 2003
This Paper demonstrates that mall store contracts are written to internalize externalities through both an efficient allocation and pricing of space and an efficient allocation of incentives across stores. Certain stores generate externalities by drawing customers to other stores, while many stores primarily benefit from external mall traffic. Therefore, to varying degrees, the success of each store depends upon the presence and effort of other stores, and the effort of the developer to attract

Contracts, Externalities, and Incentives in Shopping Malls
Date Posted: Nov  21, 2002
This paper demonstrates that mall store contracts are written to internalize externalities through both an efficient allocation and pricing of space, and an efficient allocation of incentives across stores. Certain stores generate externalities by drawing customers to other stores, while many stores primarily benefit from external mall traffic. Therefore, to varying degrees, the success of each store depends upon the presence and effort of other stores, and the effort of the developer to attract

The Tenuous Trade-off between Risk and Incentives
Date Posted: Oct  10, 2002
Empirical work testing for a negative trade-off between risk and incentives has not had much success: The data suggest a positive relationship between measures of uncertainty and incentives rather than the posited negative trade-off. I argue that the existing literature fails to account for an important effect of uncertainty on incentives through the allocation of responsibility to employees. When workers operate in certain settings, firms are content to assign tasks to workers and monitor their

Consumers and Agency Problems
Date Posted: Jul  26, 2002
Consumers solve many agency problems, by pointing out when they believe that agents have made mistakes. This paper considers the role that consumers play in inducing efficient behavior by agents. I distinguish between two case: those where consumers have similar preferences to the principal, and those where consumer preferences diverge from those of the principal. In the former case, allowing consumer feedback improves allocations, and increasing consumer information is unambiguously beneficial.

Selection and Oversight in the Public Sector, With the Los Angeles Police Department as an Example
Date Posted: Jan  28, 2002
I offer theoretical and empirical observations on the oversight of public sector employees. I argue that it is unreasonable to expect that the solutions typically considered in the literature will be effective with public sector employees, because bureaucrats are especially difficult to monitor. To offset this weakness, agencies tend to hire bureaucrats who are biased against consumers, where such bias increases incentives. I then address how bureaucrats should be overseen and offer a choice bet

Favoritism Under Social Pressure
Date Posted: Sep  25, 2001
This paper provides empirical evidence of favoritism by agents, where that favoritism is generated by social pressure. To do so, we explore the behavior of professional soccer referees. Referees have discretion over the addition of extra time at the end of a soccer game (called injury time), to compensate for lost time due to unusual stoppages. We test for systematic bias shown by Spanish referees in favor of home teams. We show that referees systematically favor home teams by shortening clos

Favoritism Under Social Pressure
Date Posted: Sep  18, 2001
This paper provides empirical evidence of favoritism by agents, where that favoritism is generated by social pressure. To do so, we explore the behavior of professional soccer referees. Referees have discretion over the addition of extra time at the end of a soccer game (called injury time), to compensate for lost time due to unusual stoppages. We test for systematic bias shown by Spanish referees in favor of home teams. We show that referees systematically favor home teams by shortening close g

The Tenuous Tradeoff Between Risk and Incentives
Date Posted: Jun  24, 2001
Empirical work testing for a negative tradeoff between risk and incentives, a cornerstone of agency theory, has not had much success. Indeed, the data seem to suggest a positive relationship between measures of uncertainty and incentives, rather than the posited negative tradeoff. I argue that the existing literature fails to account for an important effect of uncertainty on incentives through the allocation of responsibility to employees. When workers operate in certain settings, the activi

Non-Monetary Exchange Within Firms and Industry
Date Posted: May  12, 2000
This paper considers why non-monetary means of exchange, such as barter and the reciprocation of favors, are chosen by firms despite the usual benefits of monetary transactions. We consider the chosen means of exchange when both monetary and non-monetary exchange mechanisms are available. We illustrate three potential reasons for the emergence of non-monetary trade. First, a willingness to barter may reveal information that cannot be revealed solely through monetary trade. Second, non-moneta

What Happens Within Firms? A Survey of Empirical Evidence on Compensation Policies
Date Posted: May  09, 2000
This paper provides an overview of empirical work dealing with the compensation policies of firms. This literature is considered from the perspective of three major theories: human capital, learning, and incentives. Considerable empirical work has addressed each of these theories with some success. However, our understanding of the effect of compensation on behavior and of the motivations for firms in choosing certain policies has been constrained by two important problems. First, the absence

Favoritism in Organizations
Date Posted: Apr  12, 1998
Objective measures of employee performance are rarely available. Instead, firms rely on subjective judgments by supervisors. Subjectivity opens the door to favoritism, where evaluators act on personal preferences toward subordinates to favor some employees over others. Firms must balance the costs of favoritism arbitrary rewards and less productive job assignments against supervisors' demands for authority over subordinates. We analyze the conditions under which favoritism is costly to organizat

Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning
Date Posted: Feb  01, 1998
This paper examines individual decision making when decisions reflect on people's ability to learn. We address this problem in the context of a manager making investment decisions on a project over time. We show that in an effort to appear as a fast learner, the manager will exaggerate his own information; but ultimately, he becomes too conservative, being unwilling to change his investments on the basis of new information. Our results arise purely from learning about competence rather than conc