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Delegation, worker compensation, and strategic competition

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  • Güth, Werner
  • Pull, Kerstin
  • Stadler, Manfred

Abstract

We study interfirm competition on a product market where effort decisions are delegated to the firms' workers. Intrafirm organization is captured by a principal-multiagent framework where firm owners implement alternative compensation schemes for the workers. We show that the value of delegation as well as the optimal design of the compensation scheme crucially depend on the intensity of competition. In particular, our model explains why piece rates and performance-based revenue sharing may be observed in different markets at the same time.

Suggested Citation

  • Güth, Werner & Pull, Kerstin & Stadler, Manfred, 2014. "Delegation, worker compensation, and strategic competition," University of Tübingen Working Papers in Business and Economics 67, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    • Handle: RePEc:zbw:tuewef:67
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    References listed on IDEAS

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    Cited by:

    1. Pull, Kerstin & Stadler, Manfred, 2015. "Contests vs. piece rates in product market competition," University of Tübingen Working Papers in Business and Economics 85, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    2. Werner Güth & René Levínský & Kerstin Pull & Ori Weisel, 2016. "Tournaments and piece rates revisited: a theoretical and experimental study of output-dependent prize tournaments," Review of Economic Design, Springer;Society for Economic Design, vol. 20(1), pages 69-88, March.

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    More about this item

    Keywords

    delegation; agency theory; compensation schemes;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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