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A Rent Extraction View of Employee Discounts and Benefits

Author

Listed:
  • Anthony Marino

    () (USC)

  • Jan Zabojnik

    () (Queen's University)

Abstract

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.

Suggested Citation

  • Anthony Marino & Jan Zabojnik, 2006. "A Rent Extraction View of Employee Discounts and Benefits," Working Papers 1108, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:1108
    as

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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1108.pdf
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    References listed on IDEAS

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    Cited by:

    1. Sebastian Kube & Michel Andre Marechal & Clemens Puppe, 2012. "The Currency of Reciprocity: Gift Exchange in the Workplace," American Economic Review, American Economic Association, vol. 102(4), pages 1644-1662, June.
    2. Michael D. Grubb & Paul Oyer, 2008. "Who Benefits from Tax-Advantaged Employee Benefits?: Evidence from University Parking," NBER Working Papers 14062, National Bureau of Economic Research, Inc.
    3. Weinschenk, Philipp, 2013. "Compensation, perks, and welfare," Economics Letters, Elsevier, vol. 120(1), pages 67-70.
    4. Anthony Marino, 2015. "Work environment and moral hazard," Journal of Regulatory Economics, Springer, vol. 48(1), pages 53-73, August.
    5. repec:eee:jocaae:v:8:y:2012:i:2:p:110-120 is not listed on IDEAS

    More about this item

    Keywords

    In Kind Compensation; Bundling; Optimal Employment Contracts;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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