Industry Profits, Wages and Competition under Incentive Labour Contracts with Unverifiable Effort

Nicola Meccheri () and Luciano Fanti

Working Paper series from Rimini Centre for Economic Analysis

Abstract: This paper studies the interaction between incentive labour contracts, competition à la Cournot and industry profits, in a context where workers' effort is not verifiable and the probability of the unemployed getting a job can depend on their employment histories according to the degree of product market competition. It is shown that efficiency wages paid by each firm can decrease when competition becomes fiercer. With discretionary bonuses, instead, wages are generally uncorrelated with competition, but there exists an upper threshold for the number of competing firms, over which profits collapse to zero. Moreover, if information about firms' misbehaviour in paying bonuses flows in the labour market at a low rate, firms can make positive profits only by paying efficiency wages.

Keywords: industry profits; Cournot competition; efficiency wages; performance pay (search for similar items in EconPapers)
JEL-codes: J33 J41 L13 (search for similar items in EconPapers)
Date: 2010-01
New Economics Papers: this item is included in nep-bec, nep-com, nep-cta and nep-lab
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:37_10

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