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Work-related perks, agency problems, and optimal incentive contracts

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  • Anthony M. Marino
  • Ján Zábojník

Abstract

Work-related perks, such as corporate jets, nice offices, and so forth, improve the tradeoff between incentives and insurance that determines the optimal incentive contract. We show that (i) such perks may be offered even if their direct consumption benefits are offset by their costs; (ii) they will be offered for free; (iii) agents in more uncertain production environments will receive more perks; (iv) senior executives should receive more perks; and (v) better corporate governance can lead to more perk consumption by CEOs. Our analysis also offers insights into firms' decisions about how much autonomy they should grant to their employees. Copyright (c) 2008, RAND.

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Bibliographic Info

Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 39 (2008)
Issue (Month): 2 ()
Pages: 565-585

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Handle: RePEc:bla:randje:v:39:y:2008:i:2:p:565-585

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Citations

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Cited by:
  1. Kvaløy, Ola & Nieken, Petra & Schöttner, Anja, 2013. "Hidden Benefits of Reward: A Field Experiment on Motivation and Monetary Incentives," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 451, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Martin Grossmann & Markus Lang & Helmut Dietl, 2011. "Why Taxing Executives' Bonuses Can Foster Risk-Taking Behavior," Working Papers, University of Zurich, Institute for Strategy and Business Economics (ISU) 0150, University of Zurich, Institute for Strategy and Business Economics (ISU), revised May 2012.
  3. Weinschenk, Philipp, 2013. "Compensation, perks, and welfare," Economics Letters, Elsevier, Elsevier, vol. 120(1), pages 67-70.
  4. Kvaløy, Ola & Schöttner, Anja, 2012. "Incentives to Motivate," UiS Working Papers in Economics and Finance 2012/15, University of Stavanger.
  5. Helmut Dietl & Martin Grossmann & Markus Lang & Simon Wey, 2010. "Incentive Effects of Bonus Taxes in a Principal-Agent Model," Working Papers, University of Zurich, Institute for Strategy and Business Economics (ISU) 0140, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Feb 2012.
  6. Hammermann, Andrea & Mohnen, Alwine, 2012. "Who Benefits from Benefits? Empirical Research on Tangible Incentives," IZA Discussion Papers 6284, Institute for the Study of Labor (IZA).
  7. Joon Song, 2008. "Perks: Contractual Arrangements to Restrain Moral Hazard," Economics Discussion Papers, University of Essex, Department of Economics 650, University of Essex, Department of Economics.
  8. Pattarin Adithipyangkul & Ilan Alon & Tianyu Zhang, 2011. "Executive perks: Compensation and corporate performance in China," Asia Pacific Journal of Management, Springer, Springer, vol. 28(2), pages 401-425, June.
  9. Xu, Nianhang & Li, Xiaorong & Yuan, Qingbo & Chan, Kam C., 2014. "Excess perks and stock price crash risk: Evidence from China," Journal of Corporate Finance, Elsevier, Elsevier, vol. 25(C), pages 419-434.

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