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An Income-Satiation Model of Efficiency Wages

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  • Rasmusen, Eric

Abstract

Efficiency wages are wages that exceed a worker's reservation wage. A standard explanation for such wages is "bonding": high wages increase the cost of being discharged for misbehavior and so help ensure worker honesty. A neglected alternative is "satiation": by decreasing the worker's marginal utility of income, the high wage decreases the benefit from misbehavior. Satiation, unlike bonding, applies even in a one-period model, but it relies on the misbehavior having a monetary benefit and on at least part of the punishment being nonmonetary. Copyright 1992 by Oxford University Press.

Suggested Citation

  • Rasmusen, Eric, 1992. "An Income-Satiation Model of Efficiency Wages," Economic Inquiry, Western Economic Association International, vol. 30(3), pages 467-478, July.
  • Handle: RePEc:oup:ecinqu:v:30:y:1992:i:3:p:467-78
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    Cited by:

    1. Frank Buckley & Eric Rasmusen, 2000. "The Uneasy Case for the Flat Tax," Constitutional Political Economy, Springer, vol. 11(4), pages 295-318, December.
    2. Rasmusen, Eric, 1996. "Stigma and Self-Fulfilling Expectations of Criminality," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 519-543, October.
    3. RafaelDi Tella & Federico Weinschelbaum, 2008. "Choosing agents and monitoring consumption: a note on wealth as a corruption-controlling device," Economic Journal, Royal Economic Society, vol. 118(532), pages 1552-1571, October.
    4. Federico Weinschelbaum & Rafael Di Tella, 2005. "A Note on Wealth as a Corruption-Controlling Device," Working Papers 83, Universidad de San Andres, Departamento de Economia, revised Mar 2005.
    5. Yang, Der-Yuan, 2008. "On the elements and practices of monitoring," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 654-666, March.
    6. G.G.A. de Geest & G. Dari Mattiacci & J.J. Siegers, 2004. "The Intrinsic Inferiority of Efficiency Wages to Damages and Conditional Bonuses," Working Papers 04-15, Utrecht School of Economics.

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