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Incentive pay: Productivity, sorting, and adjacent rents

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  • Stefanec, Noah Patrick

Abstract

I model and empirically test the hypothesis that higher-quality workers prefer performance pay to time-rate based pay because they realize rent upon two different dimensions: Explicit and implicit rents. First, higher-quality workers are outright more productive than their lower-quality counterparts, earning them explicit rent (Curme and Stefanec, 2007). Second, these same factors of production facilitate the unobserved heterogeneity for incentive workers, earning them implicit rent because they can produce a given level of output with less effort. I find strong empirical evidence to confirm that these implicit rents exist and I measure them at 1.5-3.4 percent of average real hourly earnings.

Suggested Citation

  • Stefanec, Noah Patrick, 2010. "Incentive pay: Productivity, sorting, and adjacent rents," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(2), pages 171-179, April.
  • Handle: RePEc:eee:soceco:v:39:y:2010:i:2:p:171-179
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    Cited by:

    1. repec:eee:jeborg:v:142:y:2017:i:c:p:205-225 is not listed on IDEAS
    2. Takashi Kamihigashi, 2015. "Regime-Switching Sunspot Equilibria in a One-Sector Growth Model with Aggregate Decreasing Returns and Small Externalities," Discussion Paper Series DP2015-42, Research Institute for Economics & Business Administration, Kobe University.
    3. Heywood, John S. & Jirjahn, Uwe & Struewing, Cornelia, 2017. "Locus of control and performance appraisal," Journal of Economic Behavior & Organization, Elsevier, pages 205-225.

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