Konferenzbeitrag
Effort Incentives and On-the-Job Search: An Alternative Role for Efficiency Wages in Employment Contracts
We study an infinitely repeated principal-agent relationship with on-the-job search. On-the-job search is modeled as a dimension of the agent's effort vector that has no effect on output, but raises his future outside option. The agent's incentives to search are increasing in the degree to which a higher outside option improves his gains from trade. Search also increases the agent's cost of effort thus generating an effort-substitution problem between work and search effort. We show that the principal can mute search incentives by offering an e fficiency wage contract. Due to effort substitution, e fficiency wages increase the agent's work effort incentives for a given bonus scheme. Thus, effi ciency wages serve as a complement rather than as a substitute to piece rates. Our results provide a new rationale for the use of effi ciency wages as an incentive device and hence greatly extend the set of environments in which e fficiency wages are predicted to be useful as an incentive device. Our findings thus also contribute to the explanation of empirically observed inter-industry variation in the size and composition of worker compensation.
- Language
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Englisch
- Bibliographic citation
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Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2013: Wettbewerbspolitik und Regulierung in einer globalen Wirtschaftsordnung - Session: Dynamic Models of Duopoly and Labor Markets ; No. A17-V1
- Classification
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Wirtschaft
Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
Economics of Contract: Theory
Compensation Packages; Payment Methods
- Event
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Geistige Schöpfung
- (who)
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Herbold, Daniel
- Event
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Veröffentlichung
- (who)
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft
- (where)
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Kiel und Hamburg
- (when)
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2013
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Konferenzbeitrag
Associated
- Herbold, Daniel
- ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft
Time of origin
- 2013
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