J. of the Acad. Mark. Sci. (2014) 42:361–379
DOI 10.1007/s11747-013-0364-3

ORIGINAL EMPIRICAL RESEARCH

When do incentives work in channels of distribution?
David I. Gilliland & Stephen K. Kim

Received: 31 December 2012 / Accepted: 1 November 2013 / Published online: 7 December 2013
# Academy of Marketing Science 2013

D. I. Gilliland
Aston University, Birmingham, UK B47ET

incentive offers because monetary rewards offset the agent’s risk and unpredictability of its income stream (Jensen and
Meckling 1976). Despite general support for this logic, researchers have been puzzled by a substantive dilemma:
Incentives often do not work. Benabou and Tirole (2003);
Bouillon et al. (2006), and others have found that agents do not always respond positively as incentives increase. Other findings indicate that monetary incentives are sometimes demotivational (Ryan and Deci 2000), lead to dysfunctional activities by rewarding the wrong behavior (Baker 2002; Oyer
1998), are an inefficient control mechanism (Akerlof and
Kranton 2005), promote shirking rather than compliance
(Gibbons 1998), and are unpredictable under turbulent industry conditions (Prendergast 1999). The idea that incentives often do not work has been substantiated in the practitioner literature as well. Kesmodel (2008) reports in the Wall Street
Journal that even dominant firms find it difficult to structure effective incentive portfolios with the resellers of their products. These and other findings motivate our research question:
When do incentives work in a channels of distribution context? The question of when principal-designed incentive portfolios work requires examination of the differences that exists between two key marketing channel governance outcomes: compliance and active representation. Of interest is the extent to which a principal’s (e.g., channel supplier’s)