A Linear Compensation Scheme Resolving Inter-Departmental Conflicts

Abstract

In this paper, we deal with inter-departmental conflicts such as

marketing-manufacturing conflict We show that the popular

compensahon schemes such as the ones based on each party's own

performance and/or overall performance can not induce the Pareto-

Optimal effort from participants. By making one party's reward

dependent on the other party's performance in addition to its own and

overall performances. we can induce each party to put the Pareto-

Optimal effort. By constructing an appropnate compensation scheme,

we can resolve the conflict between participating departments and

induce optimal amount of cooperatwe effort.