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Performance Pay and Adverse Selection

Author

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  • Moen, Espen R.
  • Rosén, Ã…sa

Abstract

It is well known in personnel economics that firms may improve the quality of their workforce by offering performance pay. We analyse an equilibrium model where worker productivity is private information and show that the gains to the firms from worker self-selection may not be matched by a corresponding social gain. In particular, the equilibrium incentive to workers to exert too much effort.

Suggested Citation

  • Moen, Espen R. & Rosén, Ã…sa, 2004. "Performance Pay and Adverse Selection," CEPR Discussion Papers 4511, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4511
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    1. is not listed on IDEAS
    2. Roland Bénabou & Jean Tirole, 2016. "Bonus Culture: Competitive Pay, Screening, and Multitasking," Journal of Political Economy, University of Chicago Press, vol. 124(2), pages 305-370.
    3. Josse Delfgaauw & Robert Dur, 2008. "Incentives and Workers' Motivation in the Public Sector," Economic Journal, Royal Economic Society, vol. 118(525), pages 171-191, January.
    4. Cornelissen, Thomas & Heywood, John S. & Jirjahn, Uwe, 2011. "Performance pay, risk attitudes and job satisfaction," Labour Economics, Elsevier, vol. 18(2), pages 229-239, April.
    5. Bannier, Christina E. & Feess, Eberhard & Packham, Natalie, 2014. "Incentive schemes, private information and the double-edged role of competition for agents," CFS Working Paper Series 475, Center for Financial Studies (CFS).
    6. Thiele, Veikko, 2007. "Task-Specific Abilities in Multi-Task Agency Relations," MPRA Paper 2470, University Library of Munich, Germany.
    7. Javier Fernández‐Blanco & Pedro Gomes, 2017. "Unobserved Heterogeneity, Exit Rates, and Re‐Employment Wages," Scandinavian Journal of Economics, Wiley Blackwell, vol. 119(2), pages 375-404, April.
    8. Byunghyun Lee & Changjae Lee & Ilyoung Choi & Jaekyeong Kim, 2022. "Analyzing Determinants of Job Satisfaction Based on Two-Factor Theory," Sustainability, MDPI, vol. 14(19), pages 1-19, October.
    9. Ernesto Reuben & Matthew Wiswall & Basit Zafar, 2017. "Preferences and Biases in Educational Choices and Labour Market Expectations: Shrinking the Black Box of Gender," Economic Journal, Royal Economic Society, vol. 127(604), pages 2153-2186, September.
    10. Anne Beyer & Ilan Guttman & Iván Marinovic, 2014. "Optimal Contracts with Performance Manipulation," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 52(4), pages 817-847, September.
    11. Bryson, Alex & Dale-Olsen, Harald, 2024. "Job Search, Efficiency Wages and Taxes," IZA Discussion Papers 17385, Institute of Labor Economics (IZA).

    More about this item

    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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