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original papers : Incentive compatible reward schemes for labour-managed firms


  • Bhaskar Dutta
  • Salvador BarberÁ


We consider a simple case of team production, where a set of workers have to contribute a single input (say labour) and then share the joint output amongst themselves. Different incentive issues arise when the skills as well as the levels of effort expended by workers are not publicly observable. We study one of these issues in terms of a very simple model in which two types of workers, skilled and unskilled, supply effort inelastically. Thus, we assume away the problem of moral hazard in order to focus on that of adverse selection. We also consider a hierarchical structure of production in which the workers need to be organised in two tiers. We look for reward schemes which specify higher payments to workers who have been assigned to the top-level jobs when the principal detects no lies, distribute the entire output in all circumstances, and induce workers to revel their true abilities. We contemplate two scenarios. In the first one, each individual worker knows only her own type, while in the second scenario each worker also knows the abilities of all other workers. Our general conclusion is that the adverse selection problem can be solved in our context. However, the range of satisfactory reward schemes depends on the informational framework.

Suggested Citation

  • Bhaskar Dutta & Salvador BarberÁ, 2000. "original papers : Incentive compatible reward schemes for labour-managed firms," Review of Economic Design, Springer;Society for Economic Design, vol. 5(2), pages 111-127.
  • Handle: RePEc:spr:reecde:v:5:y:2000:i:2:p:111-127

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    References listed on IDEAS

    1. Andrew Postlewaite, 1979. "Manipulation via Endowments," Review of Economic Studies, Oxford University Press, vol. 46(2), pages 255-262.
    2. Jordan, J. S., 1982. "The competitive allocation process is informationally efficient uniquely," Journal of Economic Theory, Elsevier, vol. 28(1), pages 1-18, October.
    3. Mount, Kenneth & Reiter, Stanley, 1974. "The informational size of message spaces," Journal of Economic Theory, Elsevier, vol. 8(2), pages 161-192, June.
    4. Saijo, Tatsuyoshi, 1988. "Strategy Space Reduction in Maskin's Theorem: Sufficient Conditions for Nash Implementation," Econometrica, Econometric Society, vol. 56(3), pages 693-700, May.
    5. McKelvey, Richard D. & Niemi, Richard G., 1978. "A multistage game representation of sophisticated voting for binary procedures," Journal of Economic Theory, Elsevier, vol. 18(1), pages 1-22, June.
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    Cited by:

    1. Nathalie Greenan & Marc-Arthur Diaye & Patricia Crifo, 2004. "Pourquoi les entreprises évaluent-elles individuellement leurs salariés ?," Économie et Prévision, Programme National Persée, vol. 164(3), pages 27-55.

    More about this item


    Incentives; adverse selection; strategy-proofness; reward schemes; labour-managed firms;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • D20 - Microeconomics - - Production and Organizations - - - General


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