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Hedonic prices and multidimensional incentives

  • Masaki Nakabayashi

    ()

    (Graduate School of Economics, Osaka University)

Human tasks are often multidimensional. Holmstrom and Milgrom (1991) concluded that ghigh-poweredh incentives cannot work unless all dimensions of these tasks are observable in the firm. However, as this study shows, if the firm can observe the price vector of its products in the market, distinguish each dimension of the price vector, and connect the information with signals from workers in the firm, then the use of multidimensional ghigh-poweredh incentives becomes feasible. Product differentiation with committed quality satisfies those conditions, which has been practiced by the Japanese, but not by the Western, manufacturing for a century.

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File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0532R2.pdf
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Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 05-32-Rev.2.

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Length: 31 pages
Date of creation: Dec 2005
Date of revision: May 2006
Handle: RePEc:osk:wpaper:0532r2
Contact details of provider: Web page: http://www.econ.osaka-u.ac.jp/
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  11. Bengt Holmstrom, 1997. "Moral Hazard and Observability," Levine's Working Paper Archive 1205, David K. Levine.
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