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Present-biased preferences and optimal compensation schedules: a note

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  • Battisti, Michele

Abstract

This paper presents a very simple model with present biased agents where optimal compensation schedules may be back-loaded, which is a characteristics of wage contracts we often observe in reality. There is large evidence that workers are often paid less than their marginal productivity early in their careers, and more than their marginal productivity later. In this model, back-loaded wage schedules emerge as a commitment device that allows to prevent sub-optimal consumption and labor supply patterns.

Suggested Citation

  • Battisti, Michele, 2015. "Present-biased preferences and optimal compensation schedules: a note," MPRA Paper 64818, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:64818
    as

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    File URL: https://mpra.ub.uni-muenchen.de/64818/1/MPRA_paper_64818.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Present biased preferences; optimal wages; commitment device;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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