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Performance Pay and Adverse Selection

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Author Info
Moen, Espen R
Rosen, Asa

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Abstract

It is well known in personnel economics that firms may improve the quality of their workforce by offering performance pay. We analyse an equilibrium model where worker productivity is private information and show that the gains to the firms from worker self-selection may not be matched by a corresponding social gain. In particular, the equilibrium incentive to workers to exert too much effort.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4511.

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Date of creation: Aug 2004
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Handle: RePEc:cpr:ceprdp:4511

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Related research
Keywords: efficiency; performance pay; selection;

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  2. Oliver Hart & Bengt Holmstrom, 1986. "The Theory of Contracts," Working papers 418, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Thiele, Veikko, 2007. "Task-Specific Abilities in Multi-Task Agency Relations," MPRA Paper 2470, University Library of Munich, Germany. [Downloadable!]
  2. Thomas Cornelißen & John S. Heywood & Uwe Jirjahn, 2008. "Performance Pay, Risk Attitudes and Job Satisfaction," SOEPpapers 136, DIW Berlin, The German Socio-Economic Panel (SOEP). [Downloadable!]
  3. Josse Delfgaauw & Robert Dur, 2004. "Incentives and Workers' Motivation in the Public Sector," Tinbergen Institute Discussion Papers 04-060/1, Tinbergen Institute. [Downloadable!]
  4. Josse Delfgaauw & Robert A. J. Dur, 2004. "Incentives and Workers’ Motivation in the Public Sector," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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