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A Rent Extraction View of Employee Discounts and Benefits

Author

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  • Marino, Anthony
  • Zabojnik, Jan

Abstract

We offer a novel view of employee discounts and in kind compensation. In our theory, bundling perks and cash compensation allows a firm to extract information rents from employees who have private information about their preferences for the perk and about their outside opportunities. We show that in maximizing profit with heterogeneous workers, the firm creates different bundles of the perk and salary in response to different employee characteristics and marginal costs of the perk. Our key result is that strategic bundling can lead firms to provide perks even in the absence of any cost advantage over the outside market and to deviate from the standard marginal cost pricing rule. We study how this deviation depends upon the set of feasible contracts, upon the perk’s marginal cost, and upon the correlation between the agents’ preferences for the good and their reservation utilities.

Suggested Citation

  • Marino, Anthony & Zabojnik, Jan, 2006. "A Rent Extraction View of Employee Discounts and Benefits," Queen's Economics Department Working Papers 273584, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:273584
    DOI: 10.22004/ag.econ.273584
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    Cited by:

    1. is not listed on IDEAS
    2. Weinschenk, Philipp, 2013. "Compensation, perks, and welfare," Economics Letters, Elsevier, vol. 120(1), pages 67-70.
    3. Sebastian Kube & Michel Andre Marechal & Clemens Puppe, 2012. "The Currency of Reciprocity: Gift Exchange in the Workplace," American Economic Review, American Economic Association, vol. 102(4), pages 1644-1662, June.
    4. Anthony Marino, 2015. "Work environment and moral hazard," Journal of Regulatory Economics, Springer, vol. 48(1), pages 53-73, August.
    5. Michael D. Grubb & Paul Oyer, 2008. "Who Benefits from Tax-Advantaged Employee Benefits?: Evidence from University Parking," NBER Working Papers 14062, National Bureau of Economic Research, Inc.
    6. Xiaoyi Ren & Xing Liu & Zongtao Tian, 2020. "Excess perks in SOEs: evidence from China," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 34(2), pages 152-165, November.
    7. Zhao, Wenzhuo & Qin, Luohan & Zhao, Yali & Zuo, Jingjing, 2024. "Social media coverage and perk consumption: Agency view or efficiency view?," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 1058-1073.
    8. Adithipyangkul, Pattarin, 2012. "Non-cash compensation with production externalities and agency problems related to an agent’s consumption choice," Journal of Contemporary Accounting and Economics, Elsevier, vol. 8(2), pages 110-120.

    More about this item

    Keywords

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    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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