Bonus Payments versus Efficiency Wages in the Repeated Principal-Agent Model with Subjective Evaluations

Lucas Maestri

American Economic Journal: Microeconomics, 2012, vol. 4, issue 3, 34-56

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)

JEL-codes: D82 J33 J41 (search for similar items in EconPapers)
Date: 2012
Note: DOI: 10.1257/mic.4.3.34
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Citations: View citations in EconPapers (20)

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