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Hedonic prices and multitask incentives

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  • Masaki Nakabayashi

    ()
    (Graduate School of Economics, Osaka University)

Abstract

Many human tasks are multidimensional. Hence Holmstrom and Milgrom (1991) concluded that a ghigh-poweredh incentive cannot work unless all dimensions of the task are observable in the firm. However, as this study shows, if the firm can observe the price vector of its product in the market, distinguish each dimension of the price vector, and connect the information with signals from workers in the firm, then the multitask ghighpoweredh incentive becomes manageable. Product differentiation with committed quality satisfies this condition, which has been practiced by Japanese, but not by Western, manufacturing for a century.

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Bibliographic Info

Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 05-32.

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Length: 30 pages
Date of creation: Dec 2005
Date of revision:
Handle: RePEc:osk:wpaper:0532

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Web page: http://www.econ.osaka-u.ac.jp/
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Keywords: multitask incentive; high-powered incentive; hedonic price; contract theory; Japanese manufacturing.;

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  1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
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  8. Epple, Dennis, 1987. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 59-80, February.
  9. Preyra, Colin & Pink, George, 2001. "Balancing incentives in the compensation contracts of nonprofit hospital CEOs," Journal of Health Economics, Elsevier, vol. 20(4), pages 509-525, July.
  10. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
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