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Pay equality among heterogeneous agents

Author

Listed:
  • Hoffman, Ryan
  • Kambhampati, Ashwin
  • Kaplan, Scott

Abstract

A principal incentivizes a team of agents to work by choosing performance-contingent rewards. She desires to implement work by all agents as a unique Nash equilibrium. We identify necessary and sufficient conditions under which it is optimal to reward heterogeneous agents equally, and show that increasing inequality in the marginal productivities of agents can either increase or decrease pay inequality. Our results rationalize patterns of performance pay in many labor market settings, including professional sports leagues and the military.

Suggested Citation

  • Hoffman, Ryan & Kambhampati, Ashwin & Kaplan, Scott, 2023. "Pay equality among heterogeneous agents," Economics Letters, Elsevier, vol. 229(C).
    • Handle: RePEc:eee:ecolet:v:229:y:2023:i:c:s0165176523002136
    DOI: 10.1016/j.econlet.2023.111188
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    References listed on IDEAS

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    More about this item

    Keywords

    Teams; Incentives; Unique implementation; Inequality;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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