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American Economic Review: Vol. 101 No. 2 (April 2011)

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Deferred Compensation in Multiperiod Labor Contracts: An Experimental Test of Lazear's Model

Article Citation

Huck, Steffen, Andrew J. Seltzer, and Brian Wallace. 2011. "Deferred Compensation in Multiperiod Labor Contracts: An Experimental Test of Lazear's Model." American Economic Review, 101(2): 819-43.

DOI: 10.1257/aer.101.2.819

Abstract

This paper provides the first experimental test of Edward Lazear's (1979) model of deferred compensation. We examine the relationship between firms' wage offers and workers' effort supply in a multi-period environment. If firms can ex ante commit to a wage schedule with deferred compensation, workers should respond by supplying sufficient effort to avoid dismissal. We contrast this full-commitment case to controls with no commitment and computer-generated wages in order to examine the roles of monetary incentives, social preferences, and reciprocity. Finally, we examine a setup without formal commitment, but where firms can build a reputation for paying deferred wages. (JEL D86, J22, J31, J33, J41)

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Authors

Huck, Steffen (U College London and ELSE)
Seltzer, Andrew J. (Royal Holloway, U London)
Wallace, Brian (U College London)

JEL Classifications

D86: Economics of Contract: Theory
J22: Time Allocation and Labor Supply
J31: Wage Level and Structure; Wage Differentials
J33: Compensation Packages; Payment Methods
J41: Labor Contracts


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