Wealth Effects, Incentives and Productivity
Comparative static effects of varying the wealth level of a risk averse agent in a moral hazard setting with limited liability constraints are investigated. There are two principal opposing effects of increasing wealth: the incentive effect which allows stronger punishments for poor performance, thereby encouraging higher effort; and the preference effect, which reduces the agent's effort incentives owing to income effects in the demand for leisure. It is shown that optimal effort levels are initially constant, subsequently increasing and eventually decreasing in wealth. Hence agents with intermediate walth levels are the most productive.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||Jan 1997|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.bu.edu/econ/ied/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:fth:bosecd:77. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
If references are entirely missing, you can add them using this form.