Efficiency Wages and X-Inefficiencies
AbstractWithin 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 InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 180.
Length: 21 pages
Date of creation: 04 Aug 1997
Date of revision:
Publication status: Published in Scandinavian Journal of Economics, 1997, pages 581-596.
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Limited liability; Efficiency wages; Rent-seeking; X-inefficiency; Mergers;
Other versions of this item:
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
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