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Author Info

  • Glenn MacDonald
  • Leslie M. Marx

Abstract

We analyze a multiple-activity, principal-agent model in which the activities are naturally substitutable for the agent and complementary for the principal. A basic result is that the optimal compensation must cause the agent to view the activities as complements. This complementarity is achieved by employing a compensation scheme that is typically nonmonotone and makes success on multiple dimensions the sole source of large rewards. A number of empirical implications follow, along with explanations for some existing empirical findings. We also discuss applications to compensation in specific occupations.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 109 (2001)
Issue (Month): 4 (August)
Pages: 864-899

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Handle: RePEc:ucp:jpolec:v:109:y:2001:i:4:p:864-899

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