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  4. April 2011
  5. Deferred Compensation in Multiperiod Labor Contracts: An Experimental Test of Lazear's Model

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

  • Steffen Huck
  • Andrew J. Seltzer
  • Brian Wallace
American Economic Review
vol. 101, no. 2, April 2011
(pp. 819-43)
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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)

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

Additional Materials

JEL Classification

  • 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