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Efficiency Wages and X-Inefficiencies

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Author Info

  • Ellingsen, Tore

    ()
    (Dept. of Economics, Stockholm School of Economics)

Abstract

Within most organizations, agents may spend time on a variety of tasks, productive and redistributive. In this paper, I derive an optimal multi-task incentive scheme under the realistic assumption that agents have limited liability. The wage level is shown to increase with an agent's discretion and the organization's profits. With multiple agents, it is generally not optimal for the principal to fully eliminate distributional conflict within the organization. The resulting influence costs constitute a measure of X-inefficiency. The paper illuminates the relationship between competition and influence costs, emphasizing the role of the organization's production technology.

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 180.

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Length: 21 pages
Date of creation: 04 Aug 1997
Date of revision:
Publication status: Published in Scandinavian Journal of Economics, 1997, pages 581-596.
Handle: RePEc:hhs:hastef:0180

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Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Phone: +46-(0)8-736 90 00
Fax: +46-(0)8-31 01 57
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Web page: http://www.hhs.se/
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Related research

Keywords: Limited liability; Efficiency wages; Rent-seeking; X-inefficiency; Mergers;

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Cited by:
  1. Kai A. Konrad, 2002. "Investment in the Absence of Property Rights: The Role of Incumbency Advantages," CESifo Working Paper Series 698, CESifo Group Munich.
  2. Kräkel, Matthias, 2006. "On the "Adverse Selection" of Organizations," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 168, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Felix Höffler & Sebastian Kranz, 2007. "Legal Unbundling can be a Golden Mean between Vertical Integration and Separation," Bonn Econ Discussion Papers bgse15_2007, University of Bonn, Germany.
  4. Gürtler, Oliver, 2006. "Haggling for Rents, Relational Contracts, and the Theory of the Firm," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 169, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. Seabright, Paul, 2000. "Skill versus judgement and the architecture of organisations," European Economic Review, Elsevier, vol. 44(4-6), pages 856-868, May.

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