Bonus Payments versus Efficiency Wages in the Repeated Principal-Agent Model with Subjective Evaluations
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Abstract
We study an infinitely repeated principal-agent model with subjective evaluations. We compare the surplus in efficiency-wage equilibria and in bonus-payments equilibria. The agent receives a constant wage and is motivated by the threat of dismissal in efficiency-wage equilibria. The agent receives a bonus and quits the relationship after disagreements between his self-evaluation and the principal's performance appraisal in bonus-payments equilibria. We construct a class of equilibria with bonus payments that approach efficiency as patience increases. In contrast, payoffs from efficiency-wage equilibria are bounded away from the Pareto-payoff frontier for any discount factor. (JEL D82, J33, J41)Citation
Maestri, Lucas. 2012. "Bonus Payments versus Efficiency Wages in the Repeated Principal-Agent Model with Subjective Evaluations." American Economic Journal: Microeconomics, 4 (3): 34-56. DOI: 10.1257/mic.4.3.34JEL Classification
- D82 Asymmetric and Private Information
- J33 Compensation Packages; Payment Methods
- J41 Labor Contracts
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