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

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Joesph E. Stiglitz

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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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Publisher 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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  1. Elissa Braunstein, Nancy Folbre, 2001. "To Honour and Obey: Efficiency, Inequality, and Patriarchal Property Rights," Feminist Economics, Taylor and Francis Journals, vol. 7(1), pages 25-44, March. [Downloadable!] (restricted)
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  2. Edward P. Lazear, 1986. "Incentive Contracts," NBER Working Papers 1917, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Mónica Melle, 2005. "¿Cómo valora el mercado de valores español la adopción de planes de opciones sobre acciones para directivos y consejeros?," Investigaciones Economicas, Fundación SEPI, vol. 29(1), pages 73-115, January. [Downloadable!]
  4. Orn B. Bodvarsson, 1987. "Monitoring with No Moral Hazard: The Case of Small Vessel Commercial Fishing," Eastern Economic Journal, Eastern Economic Association, vol. 13(4), pages 421-434, Oct-Dec. [Downloadable!]
  5. Edward P. Lazear & Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Joseph E. Stiglitz, 1982. "Utilitarianism and Horizontal Equity: The Case for Random Taxation," NBER Working Papers 0694, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. K.P. Kannan & N. Vijayamohanan Pillai, 2001. "The political economy of public utilities: A study of the power sector," Centre for Development Studies, Trivendrum Working Papers 316, Centre for Development Studies, Trivendrum, India. [Downloadable!]
  8. Michael Waldman, 1983. "Job Assignments, Signalling nad Efficiency," UCLA Economics Working Papers 286, UCLA Department of Economics. [Downloadable!]
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  9. Sherwin Rosen, 1987. "Transactions Costs and Internal Labor Markets," NBER Working Papers 2407, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Sue Fernie & David Metcalf, 1998. "(Not)Hanging on the Telephone: Payment systems in the New Sweatshops," CEP Discussion Papers dp0390, Centre for Economic Performance, LSE. [Downloadable!]
  11. Jonas Agell, 2003. "Why are Small Firms Different? Managers' Views," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  12. Schlicht, Ekkehart, 1981. "Training Costs and Wage Differentials in the Theory of Job Competition," Discussion Papers in Economics 1347, University of Munich, Department of Economics. [Downloadable!]
  13. Agell, Jonas, 2003. "Why are Small Firms Different? Managers' Views," Research Papers in Economics 2003:9, Stockholm University, Department of Economics. [Downloadable!]
  14. David Spencer, 2003. "Love's labor's lost? the disutility of work and work avoidance in the economic analysis of labor supply," Review of Social Economy, Taylor and Francis Journals, vol. 61(2), pages 235-250, June. [Downloadable!] (restricted)
  15. Schlicht, Ekkehart, 1995. "Economic Analysis and Organised Religion," Chapters in Economics, in: Survival and Religion: Biological Evolution and Cultural Change University of Munich, Department of Economics. [Downloadable!]
  16. King, Robert P., 2002. "Supply Chain Design for High Quality Products: Economic Concepts and Examples form the United States," 13th Congress, Wageningen, The Netherlands, July 7-12, 2002 6951, International Farm Management Association. [Downloadable!]
  17. Edward P. Lazear & Kathryn L. Shaw, 2007. "Personnel Economics: The Economist's View of Human Resources," NBER Working Papers 13653, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Eva M. Meyersson-Milgrom & Trond Petersen & Rita Asplund, 2002. "Pay,Risk,and Productivity.The Case of Finland,1980 -1996," Finnish Economic Papers, Finnish Economic Association, vol. 15(1), pages 3-23, Spring. [Downloadable!]
  19. John Haltiwanger & Michael Waldman, 1983. "Interpreting Real World Contracts: An Investigation of Ex Post Mutually Beneficial Agreements," UCLA Economics Working Papers 290, UCLA Department of Economics. [Downloadable!]
  20. Julian R. Betts, 1997. "Do Grading Standards Affect the Incentive to Learn?," University of California at San Diego, Economics Working Paper Series 97-22, Department of Economics, UC San Diego. [Downloadable!]
  21. Vukina, Tomislav & Zheng, Xiaoyong, 2008. "Homogenous and Heterogenous Contestants in Piece Rate Tournaments: Theory and Empirical Analysis," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6540, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  22. Sutti Ortiz & Susana Aparicio, 2006. "Management response to the demands of global fresh fruit markets: Rewarding harvesters with financial incentives," The Journal of Development Studies, Taylor and Francis Journals, vol. 42(3), pages 446-468, April. [Downloadable!] (restricted)
  23. David A. Spencer, 2002. "Shirking the Issue? Efficiency wages, work discipline and full employment," Review of Political Economy, Taylor and Francis Journals, vol. 14(3), pages 313-327, July. [Downloadable!] (restricted)
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