EconPapers    
Economics at your fingertips  
 

Who benefits from share contracts?

Kristian G. Mortenson and Terence J. Pitre

Advances in accounting, 2018, vol. 42, issue C, 125-135

Abstract: Income volatility reduces the psychological and financial welfare of American households. A primary cause of income volatility for employees is job loss due to firm downsizing. Economists have suggested that firms could structure their employment polices to reduce the need to downsize by adopting share contracts rather than wage contracts. We use an experimental setting in which an employer offers employees a choice between a wage contract (the status quo) and a share contract. In a wage contract the employer pays an employee a fixed salary, whereas in a share contract, the employer sets the percentage of revenue the employee receives as pay. In addition, we manipulate whether the share contract incorporates a form of mutual monitoring and examine the effects of contract type and mutual monitoring on employee effort, employee contract choice and both employee and employer welfare (profit). Our results show that, compared to wage contracts, participants exert more effort under share contracts resulting in higher welfare for both employees and employers. Incorporating mutual monitoring into the share contract further increases total effort and participant welfare but does not lead to an increase in the use of share contracts.

Keywords: Employment policies; Contracting; Experiment; Share contracts; Layoff (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0882611017300081
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:42:y:2018:i:c:p:125-135

DOI: 10.1016/j.adiac.2018.06.003

Access Statistics for this article

Advances in accounting is currently edited by Dennis Caplan

More articles in Advances in accounting from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-19
Handle: RePEc:eee:advacc:v:42:y:2018:i:c:p:125-135