Piece-Rate Incentive Schemes
This paper uses recent results from incentive theory to study heretofore informal critiques of piece-rate compensation schemes. Th e informal critiques are based on the history of failed attempts to i nstall piece-rate compensation schemes at the turn of the century. Th e formal analysis emphasizes the importance of information and commit ment in contracting. The main result is as follows: in a work environ ment characterized by hidden information and a hidden action, if neit her the firm nor the worker can commit to future behavior, then no co mpensation scheme, piece-rate or otherwise, can induce the worker not to restrict output. Copyright 1987 by University of Chicago Press.
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