Labour incentive schemes in a Cournot duopoly with simple institutional constraints
AbstractThis paper studies equilibrium incentive contracts in a Cournot duopoly, in which institutional arrangements constrain firms to pay (risk-neutral) workers a given salary. In this context, performance-related-pay (PRP) and relative performance evaluation (RPE) are compared in terms of resulting levels of workers’ effort (firms’ expected output), market price, profits, consumer surplus and social welfare. It is shown that, while under principal-agent standard assumptions (i.e. all wage components are “freely” negotiated by each firm-worker pair) PRP and RPE are equivalent, in the presence of institutional “frictions”, RPE outperforms PRP in relation to output, profits, consumer surplus and social welfare. Moreover, RPE also permits to replicate results obtained without institutional constraints, even if the mechanism driving final outcomes is very different.
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Bibliographic InfoPaper provided by Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy in its series Discussion Papers with number 2010/103.
Date of creation: 10 Sep 2010
Date of revision:
Cournot duopoly; principal-agent model; relative performance evaluation; institutional constraints.;
Other versions of this item:
- Luciano Fanti & Nicola Meccheri, 2010. "Labour Incentive Schemes in a Cournot Duopoly with Simple Institutional Constraints," Working Paper Series 38_10, The Rimini Centre for Economic Analysis.
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-04 (All new papers)
- NEP-BEC-2010-12-04 (Business Economics)
- NEP-CTA-2010-12-04 (Contract Theory & Applications)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Giuseppe Nicoletti & Andrea Bassanini & Ekkehard Ernst & Sébastien Jean & Paulo Santiago & Paul Swaim, 2001. "Product and Labour Markets Interactions in OECD Countries," OECD Economics Department Working Papers 312, OECD Publishing.
- Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2009.
"Endogenous managerial incentive contracts in a differentiated duopoly, with and without commitment,"
0905, University of Crete, Department of Economics.
- Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2010. "Endogenous managerial incentive contracts in a differentiated duopoly, with and without commitment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(8), pages 531-543, December.
- Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2007. "Endogenous Strategic Managerial Incentive Contracts," Working Papers 0706, University of Crete, Department of Economics.
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