Job Mix, Performance Pay, and Matching Outcomes: Contracting with Multiple Heterogeneous Agents
We examine the problem of designing performance contracts with multiple agents when principals must compete for quality teams from a heterogeneous pool of agents. The trade-off principals face between good recruiting and good team performance provides micro foundations for agents to form stable matches, and for initially identical principals to adopt different organizational schemes. The equilibrium pattern of team formation exhibits two distinct, and inversely related, forms of assortative matching. We find that a greater share of principals offering diverse performance incentives across teammates (extensive margin), leads to a lesser degree of heterogeneity in abilities within teams on average (intensive margin). We apply the model to firm behavior to examine the mix of jobs offered and the degree of performance pay in a general equilibrium environment. At the aggregate level, increases in the supply of high-skilled workers leads to a polarization of jobs offered, i.e. relatively greater use of high- and low- skill occupations, consistent with changing labor demands in recent history. Moreover, skill accumulation among the labor force induces more firms to offer a steep set of performance contracts.
|Date of creation:||31 Jul 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:25006. 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: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.