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Incentives and discrimination: A functional optimization approach

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  • Hatakeyama, Tetsutaro

Abstract

We revisit the relationship between incentives and discrimination in team production environments. In the environments, an optimal incentive scheme, which minimizes the cost of guaranteeing workers’ effort investment, can be discriminatory (Winter, 2004). We show that this result does not hold when the firm can also choose the technology. We formulate the firm’s joint optimization problem over technology and payment schemes and show that any optimal incentive schemes are non-discriminatory (i.e., all workers are offered identical bonuses). The finding highlights a fundamental tension between technological flexibility and discrimination in incentive schemes.

Suggested Citation

  • Hatakeyama, Tetsutaro, 2026. "Incentives and discrimination: A functional optimization approach," Economics Letters, Elsevier, vol. 262(C).
    • Handle: RePEc:eee:ecolet:v:262:y:2026:i:c:s0165176526000832
    DOI: 10.1016/j.econlet.2026.112889
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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