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Beyond Moral Hazard: The Effect of Firm-Level Compensation Strategies on Economic Conflict

Author

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  • Andonova Veneta

    (Universidad de los Andes)

  • Zuleta Hernando

    (Universidad del Rosario and American University in Bulgaria)

Abstract

In many countries governments are helpless to prevent appropriation, whatever the degree of protection promised by the law. In this context, we use a simple model where workers can either work peacefully or join a guerrilla movement that expropriates entrepreneurs. We find one low-income, low-wage equilibrium with guerrilla activity and one peaceful, high-income, high-wage equilibrium. We show that the peaceful equilibrium can be reached if entrepreneurs implement standard remedies for the internal principal-agent problem such as efficiency wages.

Suggested Citation

  • Andonova Veneta & Zuleta Hernando, 2009. "Beyond Moral Hazard: The Effect of Firm-Level Compensation Strategies on Economic Conflict," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 15(1), pages 79-101, October.
    • Handle: RePEc:bpj:pepspp:v:15:y:2009:i:1:n:5
    DOI: 10.2202/1554-8597.1149
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    Cited by:

    1. Zambrano Andrés & Zuleta Hernando, 2017. "Goal and Strategies of an Insurgent Group: Violent and Non-violent Actions," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 23(2), pages 1-7, April.
    2. Carlos Bethencourt & Fernando Perera‐Tallo, 2020. "On the relationship between sectorial and institutional structural changes," Metroeconomica, Wiley Blackwell, vol. 71(3), pages 533-565, July.
    3. Zuleta, Hernando & Villaveces, Marta Juanita & Andonova, Veneta, 2013. "Conflict and negotiation in Colombia: Are pre-donations useful?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 47(C), pages 105-117.
    4. Andr√©s Zambrano & Hernando Zuleta, 2016. "Revealing the preferences of the FARC," Documentos CEDE 14572, Universidad de los Andes, Facultad de Economía, CEDE.

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