Worker compensation schemes and product market competition

Manfred Stadler

No 128, University of Tübingen Working Papers in Business and Economics from University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics

Abstract: We analyze product market competition between firm owners where the risk-neutral workers decide on their efforts and, thereby, on the output levels. Various worker compensation schemes are compared: a piece-rate compensation scheme as a benchmark when workers' output performance is verifiable, and a contest-based as well as a tournament-based compensation scheme when it is only verifiable who the best performing worker is. According to optimal designs, all the considered compensation contracts lead to an equal market outcome. Therefore, it depends decisively on the relative costs of organizing a monitoring device, a contest, or a tournament whether the one or the other compensation scheme should be implemented.

Keywords: worker compensation schemes; piece rates; contests; tournaments; product market competition (search for similar items in EconPapers)
JEL-codes: C72 L22 M52 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-bec, nep-com, nep-cta, nep-hrm and nep-ind
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuewef:128

DOI: 10.15496/publikation-38665

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