Are Efficiency Wages Efficient?
AbstractEfficiency wage models have been criticized because worker malfeasance can be prevented in a pareto efficient manner by requiring workers to post a bond which they lose if they are caught cheating. However, since it is costly to monitor workers and costless to demand a larger bond, firms should pay nothing for monitoring and demand very large bonds. Since we observe that firms devote considerable resources to monitoring workers, bonds must be limited. Therefore firms must use second best alternatives -- intensive monitoring and/or efficiency wages. The payment of efficiency wages cannot be ruled out on a priori theoretical grounds.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1935.
Date of creation: May 1986
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National Bureau of Economic Research, Inc.
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