Pay equality among heterogeneous agents

Ryan Hoffman, Ashwin Kambhampati and Scott Kaplan

Economics Letters, 2023, vol. 229, issue C

Abstract: A principal incentivizes a team of agents to work by choosing performance-contingent rewards. She desires to implement work by all agents as a unique Nash equilibrium. We identify necessary and sufficient conditions under which it is optimal to reward heterogeneous agents equally, and show that increasing inequality in the marginal productivities of agents can either increase or decrease pay inequality. Our results rationalize patterns of performance pay in many labor market settings, including professional sports leagues and the military.

Keywords: Teams; Incentives; Unique implementation; Inequality (search for similar items in EconPapers)
JEL-codes: D33 D82 D86 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:229:y:2023:i:c:s0165176523002136

DOI: 10.1016/j.econlet.2023.111188

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