Incentive Contracts And Total Factor Productivity
AbstractWe propose a transactions cost theory of total factor productivity (TFP). In a world with asymmetric information and transactions costs, productivity must be induced by incentive schemes. Labor contracts trade off marginal benefits and costs of effort. The latter include, in addition to the workers' marginal disutility of effort, organizational costs and rents. As the economy grows, contracts change endogenously, inducing higher effort and productivity. Transactions costs are also affected by societal characteristics that determine the power of incentives. Differences in these characteristics may explain cross-economy productivity differences. Numerical experiments demonstrate the model's consistency with time-series and cross-country observations. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 47 (2006)
Issue (Month): 3 (08)
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Other versions of this item:
- Demougin, Dominique M. & Bental, Benjamin, 2004. "Incentive Contracts and Total Factor Productivity," Papers 2004,41, Humboldt-Universität Berlin, Center for Applied Statistics and Economics (CASE).
- Benjamin Bental & Dominique Demougin, 2003. "Incentive Contracts and Total Factor Productivity," Cahiers de recherche 0325, CIRPEE.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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