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Efficiency Wages and X-Inefficiencies

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  • Ellingsen, Tore

Abstract

Within most organizations, agents may spend time on a variety of tasks--productive and redistributive. In this paper, the author derives an optimal multitask incentive scheme under the assumption that agents have limited liability. The wage level is shown to increase with an agent's discretion and the organization's profits. With multiple agents, it is generally not optimal for the principal to fully eliminate distributional conflict within the organization. The resulting influence costs constitute a measure of X-inefficiency. The analysis illuminates the relationship between competition and influence costs, emphasizing the role of the organization's production technology. Copyright 1997 by The editors of the Scandinavian Journal of Economics.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 99 (1997)
Issue (Month): 4 (December)
Pages: 581-96

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Handle: RePEc:bla:scandj:v:99:y:1997:i:4:p:581-96

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Cited by:
  1. Kai A. Konrad, 2002. "Investment in the Absence of Property Rights: The Role of Incumbency Advantages," CESifo Working Paper Series 698, CESifo Group Munich.
  2. Felix Höffler & Sebastian Kranz, 2007. "Legal Unbundling can be a Golden Mean between Vertical Integration and Separation," Bonn Econ Discussion Papers bgse15_2007, University of Bonn, Germany.
  3. Gürtler, Oliver, 2006. "Haggling for Rents, Relational Contracts, and the Theory of the Firm," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 169, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Kräkel, Matthias, 2006. "On the “Adverse Selection” of Organizations," IZA Discussion Papers 2396, Institute for the Study of Labor (IZA).
  5. Seabright, Paul, 2000. "Skill versus judgement and the architecture of organisations," European Economic Review, Elsevier, vol. 44(4-6), pages 856-868, May.

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