A Rent Extraction View of Employee Discounts and Benefits
AbstractWe offer a novel view of employee discounts and in kind compensation. In our theory, bundling perks and cash compensation allows a firm to extract information rents from employees who have private information about their preferences for the perk and about their outside opportunities. We show that in maximizing profit with heterogeneous workers, the firm creates different bundles of the perk and salary in response to different employee characteristics and marginal costs of the perk. Our key result is that strategic bundling can lead firms to provide perks even in the absence of any cost advantage over the outside market and to deviate from the standard marginal cost pricing rule. We study how this deviation depends upon the set of feasible contracts, upon the perk's marginal cost, and upon the correlation between the agents' preferences for the good and their reservation utilities.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 1108.
Date of creation: Sep 2006
Date of revision:
In Kind Compensation; Bundling; Optimal Employment Contracts;
Other versions of this item:
- Anthony M. Marino & JÃ¡n ZÃ¡bojnÃk, 2008. "A Rent Extraction View of Employee Discounts and Benefits," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 26(3), pages 485-518, 07.
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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