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Output and Wages with Inequality Averse Agents Author info | Abstract | Publisher info | Download info | Related research | Statistics Dominique Demougin
Claude Fluet
Carsten Helm
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We analyze a two-task work environment with risk-neutral but inequality averse individuals. For the agent employed in task 2 effort is verifiable, while in task 1 it is not. Accordingly, agent 1 receives an incentive contract which, due to his wealth constraint, leads to a rent that the other agent resents. We show that inequality aversion affects the optimal contracts of both agents. Greater inequality aversion reduces the effort, wage and payoff of agent 1, while the effects on the wage and effort of agent 2 depend on whether effort levels across tasks are substitutes or complements in the firm's output function. However, more inequality aversion unambiguously decreases total output and therefore average labor productivity.
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Paper provided by CIRPEE in its series Cahiers de recherche with number
0419.
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Date of creation: 2004Date of revision:
Handle: RePEc:lvl:lacicr:0419Contact details of provider: Postal: CP 8888, succursale Centre-Ville, Montr�al, QC H3C 3P8 Phone: (514) 987-8161 Web page: http://www.cirpee.org/ More information through EDIRC
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Keywords: Inequality aversion ; wage compression ; moral hazard ; incentives ; Other versions of this item:
Find related papers by JEL classification: D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement D2 - Microeconomics - - Production and Organizations J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
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Other versions: Alesina, Alberto & Di Tella, Rafael & MacCulloch, Robert, 2004.
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