A Rent Extraction View of Employee Discounts and Benefits
We offer a novel view of employee discounts and in kind compensation. In our theory, bundling perks and cash compensation allows a firm to extract information rents from employees who have private information about their preferences for the perk and about their outside opportunities. We show that in maximizing profit with heterogeneous workers, the firm creates different bundles of the perk and salary in response to different employee characteristics and marginal costs of the perk. Our key result is that strategic bundling can lead firms to provide perks even in the absence of any cost advantage over the outside market and to deviate from the standard marginal cost pricing rule. We study how this deviation depends upon the set of feasible contracts, upon the perk's marginal cost, and upon the correlation between the agents' preferences for the good and their reservation utilities.
|Date of creation:||Sep 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (613) 533-2250
Fax: (613) 533-6668
Web page: http://qed.econ.queensu.ca/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Montgomery, Edward & Shaw, Kathryn & Benedict, Mary Ellen, 1992.
"Pensions and Wages: An Hedonic Price Theory Approach,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(1), pages 111-28, February.
- Edward B. Montgomery & Kathryn Shaw & Mary Ellen Benedict, 1990. "Pensions and Wages: An Hedonic Price Theory Approach," NBER Working Papers 3458, National Bureau of Economic Research, Inc.
- Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- repec:tpr:qjecon:v:104:y:1989:i:2:p:371-83 is not listed on IDEAS
- Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
- Jullien, Bruno, 2000.
"Participation Constraints in Adverse Selection Models,"
Journal of Economic Theory,
Elsevier, vol. 93(1), pages 1-47, July.
- Jullien, Bruno, 1997. "Participation Constraints in Adverse Selection Models," IDEI Working Papers 67, Institut d'Économie Industrielle (IDEI), Toulouse.
- Raghuram Rajan & Julie Wulf, 2004.
"Are Perks Purely Managerial Excess?,"
NBER Working Papers
10494, National Bureau of Economic Research, Inc.
- Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
- Oyer, Paul, 2004. "Salary or Benefits?," Santa Cruz Department of Economics, Working Paper Series qt8xs3k3j8, Department of Economics, UC Santa Cruz.
- Stephen A. Woodbury, 2009.
Book chapters authored by Upjohn Institute researchers,
in: Kenneth G. Dau-Schmidt & Seth D. Harris & Orley Lobel (ed.), Labor and Employment Law and Economics, volume 2, pages 480-516
W.E. Upjohn Institute for Employment Research.
- repec:tpr:qjecon:v:90:y:1976:i:3:p:475-98 is not listed on IDEAS
- Paul Oyer, 2005. "Salary or Benefits?," NBER Working Papers 11817, National Bureau of Economic Research, Inc.
- repec:tpr:qjecon:v:94:y:1980:i:1:p:113-34 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:qed:wpaper:1108. 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: (Mark Babcock)
If references are entirely missing, you can add them using this form.