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Optimal incentive contracts for knowledge workers

Author

Listed:
  • Englmaier, Florian
  • Muehlheusser, Gerd
  • Roider, Andreas

Abstract

We study optimal incentive provision for "knowledge workers", a crucial resource for many organizations. We augment a standard moral-hazard framework to reflect two key patterns: First, retention is a challenge because workers are free to leave; thereby harming their employer. Second, the value of the workerU+05F3s outside option might depend on effort on the job. Optimal contracts that retain workers exhibit properties such as first-best effort and surplus, or non-responsiveness to changes in underlying conditions. Due to large rents, full retention is, however, costly for employers. Hence, even when socially inefficient, separation might occur in equilibrium. © 2014 Elsevier B.V.

Suggested Citation

  • Englmaier, Florian & Muehlheusser, Gerd & Roider, Andreas, 2014. "Optimal incentive contracts for knowledge workers," Munich Reprints in Economics 22008, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:22008
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    Cited by:

    1. Daniel Herbold & Heiner Schumacher, 2020. "Relational retention," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(4), pages 490-502, June.
    2. Seongwuk Moon, 2018. "Skill development, bargaining power, and a theory of job design," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(2), pages 270-296, June.
    3. Ramona Diana LEON, 2015. "The Future Knowledge Worker: An Intercultural Perspective," Management Dynamics in the Knowledge Economy, College of Management, National University of Political Studies and Public Administration, vol. 3(4), pages 675-691, December.
    4. Herbold, Daniel & Schumacher, Heiner, 2020. "The agency costs of on-the-job search," Games and Economic Behavior, Elsevier, vol. 121(C), pages 435-452.
    5. Müller, Daniel & Schmitz, Patrick W., 2021. "The right to quit work: An efficiency rationale for restricting the freedom of contract," Journal of Economic Behavior & Organization, Elsevier, vol. 184(C), pages 653-669.
    6. P. Premalatha, 2016. "Return on Retention (RoR): A Grounded Theory Study of Knowledge Workers in Indian IT Services Industry," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 41(4), pages 267-293, November.

    More about this item

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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