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Piece-Rate Incentive Schemes


  • Robert Gibbons


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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Suggested Citation

  • Robert Gibbons, 1986. "Piece-Rate Incentive Schemes," Working papers 424, Massachusetts Institute of Technology (MIT), Department of Economics.
  • Handle: RePEc:mit:worpap:424

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    References listed on IDEAS

    1. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 1-12.
    2. James A. Brander & Barbara J. Spencer, 1981. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 371-389, August.
    3. William A. Brock & José A. Scheinkman, 1985. "Price Setting Supergames with Capacity Constraints," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 371-382.
    4. Davidson, Carl, 1984. "Cartel stability and tariff policy," Journal of International Economics, Elsevier, vol. 17(3-4), pages 219-237, November.
    5. Dixit, Avinash K & Kyle, Albert S, 1985. "The Use of Protection and Subsidies for Entry Promotion and Deterrence," American Economic Review, American Economic Association, vol. 75(1), pages 139-152, March.
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