Beyond Moral Hazard: The Effect of Firm-Level Compensation Strategies on Economic Conflict

Andonova Veneta () and Hernando Zuleta
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Andonova Veneta: Universidad de los Andes

Peace Economics, Peace Science, and Public Policy, 2009, vol. 15, issue 1, 79-101

Abstract: In many countries governments are helpless to prevent appropriation, whatever the degree of protection promised by the law. In this context, we use a simple model where workers can either work peacefully or join a guerrilla movement that expropriates entrepreneurs. We find one low-income, low-wage equilibrium with guerrilla activity and one peaceful, high-income, high-wage equilibrium. We show that the peaceful equilibrium can be reached if entrepreneurs implement standard remedies for the internal principal-agent problem such as efficiency wages.

Keywords: conflict; efficiency wages; income distribution; multiple equilibria (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (4)

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DOI: 10.2202/1554-8597.1149

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