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Incentives, Risk, and Information: Notes Towards a Theory of Hierarchy

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  • Joesph E. Stiglitz

Abstract

This paper analyzes the role of incentives, risk, and information in determining the structure of employment contracts. In particular, we focus on the functions performed by piece rate versus time rate payment systems and by supervisors. The relative reliance on piece rates versus time rates is related to risk sharing, to the use of the payment system as a method of screening employees, and to differential information concerning the difficulties of the tasks being performed. The choice of payment system thus depends on the attitudes toward risk of workers and employers, effort supply elasticities, the sources and magnitude of the uncertainties, and the nature of the supervision used in the employment relation. The supervisor is viewed as monitoring inputs (enforcing contracts), screening individuals, obtaining information about the state of the world, etc. Their roles are related to the nonconvexities associated with information.

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Bibliographic Info

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

Volume (Year): 6 (1975)
Issue (Month): 2 (Autumn)
Pages: 552-579

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Handle: RePEc:rje:bellje:v:6:y:1975:i:autumn:p:552-579

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Cited by:
  1. Navarra, Cecilia & Tortia, Ermanno, 2013. "Employer moral hazard, wage rigidity and worker cooperatives: A theoretical appraisal," AICCON Working Papers 117-2013, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
  2. Sen Wang & Tim Bogle & G. Cornelis van Kooten, 2012. "Forestry and the New Institutional Economics," Working Papers 2012-05, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
  3. Nancy Folbre & Elissa Braunstein, 2000. "To Honor and Obey: Efficiency, Inequality and Patriarchal Property Rights," Published Studies ps11, Political Economy Research Institute, University of Massachusetts at Amherst.
  4. Raaj Kumar Sah, 1991. "Fallibility in Human Organizations and Political Systems," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 67-88, Spring.
  5. Navarra Cecilia & Tortia Ermanno, 2011. "Employer’s moral hazard and the emergence of worker cooperatives," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201103, University of Turin.
  6. Hyejin Ku, 2014. "Fair Trade in the Fields of Florida: The Impact of the Penny-Per-Pound on Tomato Pickers," CReAM Discussion Paper Series 1416, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  7. Bardsley, Peter & Erkal, Nisvan & Nikiforakis, Nikos & Wilkening, Tom, 2013. "Recursive contracts, firm longevity, and rat races: An experimental analysis," European Economic Review, Elsevier, vol. 61(C), pages 217-231.
  8. Sue Fernie & David Metcalf, 1998. "(Not)hanging on the telephone: payment systems in the new sweatshops," LSE Research Online Documents on Economics 20275, London School of Economics and Political Science, LSE Library.

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