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Efficiency Wages and X-Inefficiencies

Tore Ellingsen ()

Scandinavian Journal of Economics, 1997, vol. 99, issue 4, 581-96

Abstract: Within most organizations, agents may spend time on a variety of tasks--productive and redistributive. In this paper, the author derives an optimal multitask incentive scheme under the assumption that agents have limited liability. The wage level is shown to increase with an agent's discretion and the organization's profits. With multiple agents, it is generally not optimal for the principal to fully eliminate distributional conflict within the organization. The resulting influence costs constitute a measure of X-inefficiency. The analysis illuminates the relationship between competition and influence costs, emphasizing the role of the organization's production technology. Copyright 1997 by The editors of the Scandinavian Journal of Economics.

Date: 1997
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Scandinavian Journal of Economics is currently edited by Richard Friberg, Matti Liski and Kjetil Storesletten

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