IDEAS home Printed from https://ideas.repec.org/a/bla/ecinqu/v48y2010i3p575-586.html
   My bibliography  Save this article

Piece‐Rate Contracts For Other‐Regarding Workers

Author

Listed:
  • WILLIAM S. NEILSON
  • JILL STOWE

Abstract

When workers are paid with piece rates, inequality arises naturally. We consider workers who care about income comparisons and are either status seeking or inequality averse. We identify circumstances under which inequality attitudes lead workers to exert more effort than they would otherwise, and also circumstances under which workers’ inequality attitudes lead firms to set lower piece rates than they would otherwise. The key behavioral assumption for both of these results to hold when workers are identical is behindness aversion, the property that changes in inequality matter more to the worker when he is behind than when he is ahead. (JEL D01, J33, M52)

Suggested Citation

  • William S. Neilson & Jill Stowe, 2010. "Piece‐Rate Contracts For Other‐Regarding Workers," Economic Inquiry, Western Economic Association International, vol. 48(3), pages 575-586, July.
  • Handle: RePEc:bla:ecinqu:v:48:y:2010:i:3:p:575-586
    DOI: 10.1111/j.1465-7295.2008.00129.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1465-7295.2008.00129.x
    Download Restriction: no

    References listed on IDEAS

    as
    1. Pedro Rey‐Biel, 2008. "Inequity Aversion and Team Incentives," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(2), pages 297-320, June.
    2. Hideshi Itoh, 2004. "Moral Hazard and Other‐Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45, March.
    3. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    4. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
    5. Christian Grund & Dirk Sliwka, 2005. "Envy and Compassion in Tournaments," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 187-207, March.
    6. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-571, September.
    7. Christian Grund & Dirk Sliwka, 2005. "Envy and Compassion in Tournaments," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 187-207, March.
    8. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    9. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-580, June.
    10. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-817, August.
    11. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
    12. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    13. William Neilson, 2006. "Axiomatic reference-dependence in behavior toward others and toward risk," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(3), pages 681-692, August.
    14. Moene, Karl Ove & Wallerstein, Michael, 1997. "Pay Inequality," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 403-430, July.
    15. Amihai Glazer, 2008. "Optimal Contracts When a Worker Envies His Boss," Journal of Law, Economics, and Organization, Oxford University Press, vol. 24(1), pages 120-137, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecinqu:v:48:y:2010:i:3:p:575-586. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley Content Delivery). General contact details of provider: http://edirc.repec.org/data/weaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.