Nash Equilibrium Efficiency Wage Distributions
This paper extends the shirking model of efficiency wages by introducing worker heterogeneity with respect to the disutility of effort. Heterogeneity leads to a problem of adverse selection in addition to the moral hazard problem that is present in the original model. As a result of adverse selection, an equilibrium in which all firms offer the same efficiency wage cannot exist; rather, a continuously differentiable distribution of wages will be offered in equilibrium. The authors demonstrate this equilibrium by construction and derive it explicitly in the case of a uniform distribution of the effort aversion parameter. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Volume (Year): 39 (1998)
Issue (Month): 1 (February)
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