Risk Sharing and Employee Motivation in Competitive Search Equilibrium
AbstractThis paper incorporates a classical moral hazard problem with unobserved worker effort and bonus payments into a competitive search equilibrium environment with risk averse workers. The resulting framework permits an analysis of the effects of labour market competition and search frictions on individual contract setting. The paper demonstrates that the classical model of moral hazard with an ex-post wage setting regime may underestimate the optimal values of wages and bonus payments in competitive labour markets. The baseline model is extended to account for employer heterogeneity with respect to capital endowments. In the extended model, wage competition between employers serves as a source of positive correlation between wages and bonus payments reported in a number of empirical studies.
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 Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2010-07.
Length: 39 pages
Date of creation: 11 Oct 2010
Date of revision:
Find related papers by JEL classification:
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-23 (All new papers)
- NEP-BEC-2010-10-23 (Business Economics)
- NEP-CTA-2010-10-23 (Contract Theory & Applications)
- NEP-DGE-2010-10-23 (Dynamic General Equilibrium)
- NEP-LAB-2010-10-23 (Labour Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Colin Green & John Heywood, 2012. "Don't Forget the Gravy! Are Bonuses and Time Rates Complements?," Working Papers 13424023, Lancaster University Management School, Economics Department.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gundula Hadjiani).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.