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A Rent Extraction View of Employee Discounts and Benefits

  • Anthony M. Marino
  • Ján Zábojník

We examine how firms can use employee discounts and perks to extract information rents from employees who have private information about their preferences and outside opportunities. The firm creates different bundles of the perk and salary in response to different employee characteristics and marginal costs of the perk. Strategic bundling can lead firms to provide perks even without a cost advantage over the outside market and to deviate from the marginal cost pricing. We characterize how optimal perk provision depends on the set of feasible contracts, on the perk's marginal cost, and on the perk's price in the outside market. (c) 2008 by The University of Chicago.

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Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 26 (2008)
Issue (Month): 3 (07)
Pages: 485-518

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Handle: RePEc:ucp:jlabec:v:26:y:2008:i:3:p:485-518
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  1. Stephen A. Woodbury, 2009. "Unemployment," Book chapters authored by Upjohn Institute researchers, in: Kenneth G. Dau-Schmidt & Seth D. Harris & Orley Lobel (ed.), Labor and Employment Law and Economics, volume 2, pages 480-516 W.E. Upjohn Institute for Employment Research.
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