AbstractWe study low-powered incentives in a model that captures important features of workplaces in which incentive-pay approaches are minimally relevant. Our motivation is that incentive pay, while not rare, is clearly far less common than are agency problems: many firms with agency problems nonetheless pay fixed compensation and offer continued employment to all but those workers judged "unsatisfactory" according to largely subjective criteria. We find that low-powered incentives can achieve efficient outcomes in simple workplaces and function surprisingly well even when the environment is characterized by unobservable performance heterogeneity and a high degree of complementarity among workers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1999-005.
Date of creation: 1999
Date of revision:
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.:
- Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
- Lazear, Edward P & Rosen, Sherwin, 1981.
"Rank-Order Tournaments as Optimum Labor Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 89(5), pages 841-64, October.
- Paul R. Milgrom, 1981.
"Good News and Bad News: Representation Theorems and Applications,"
Bell Journal of Economics,
The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
- Paul R. Milgrom, 1979. "Good Nevs and Bad News: Representation Theorems and Applications," Discussion Papers 407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
- Kremer, M & Maskin, E, 1996.
"Wage Inequality and Segregation by Skill,"
96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
- Malcomson, James M, 1984. "Work Incentives, Hierarchy, and Internal Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 486-507, June.
- George Baker & Robert Gibbons & Kevin J. Murphy, 1993.
"Subjective Performance Measures in Optimal Incentive Contracts,"
NBER Working Papers
4480, National Bureau of Economic Research, Inc.
- Baker, George & Gibbons, Robert & Murphy, Kevin J, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1125-56, November.
- Prendergast, Canice & Topel, Robert H, 1996.
"Favoritism in Organizations,"
Journal of Political Economy,
University of Chicago Press, vol. 104(5), pages 958-78, October.
- Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
- W. Bentley MacLeod & Daniel Parent, 1998. "Job Characteristics and the Form of Compensation," CIRANO Working Papers 98s-08, CIRANO.
- Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation," Harvard Institute of Economic Research Working Papers 1777, Harvard - Institute of Economic Research.
- Surajeet Chakravarty, 2005. "Resolving Contractual Disputes: Arbitration vs Mediation," The Centre for Market and Public Organisation 05/117, Department of Economics, University of Bristol, UK.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao).
If references are entirely missing, you can add them using this form.