Hedonic prices and multitask incentives
Many human tasks are multidimensional. Hence Holmstrom and Milgrom (1991) concluded that a ghigh-poweredh incentive cannot work unless all dimensions of the task are observable in the firm. However, as this study shows, if the firm can observe the price vector of its product in the market, distinguish each dimension of the price vector, and connect the information with signals from workers in the firm, then the multitask ghighpoweredh incentive becomes manageable. Product differentiation with committed quality satisfies this condition, which has been practiced by Japanese, but not by Western, manufacturing for a century.
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|Date of creation:||Dec 2005|
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