Deferred Compensation in Multiperiod Labor Contracts: An Experimental Test of Lazear's Model

Steffen Huck, Andrew Seltzer () and Brian Wallace

American Economic Review, 2011, vol. 101, issue 2, 819-43

Abstract: This paper provides the first experimental test of Edward Lazear's (1979) model of deferred compensation. We examine the relationship between firms' wage offers and workers' effort supply in a multi-period environment. If firms can ex ante commit to a wage schedule with deferred compensation, workers should respond by supplying sufficient effort to avoid dismissal. We contrast this full-commitment case to controls with no commitment and computer-generated wages in order to examine the roles of monetary incentives, social preferences, and reciprocity. Finally, we examine a setup without formal commitment, but where firms can build a reputation for paying deferred wages. (JEL D86, J22, J31, J33, J41)

Date: 2011
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