Optimal incentive contracts for knowledge workers

Florian Englmaier, Gerd Muehlheusser and Andreas Roider

European Economic Review, 2014, vol. 67, issue C, 82-106

Abstract: We study optimal incentive provision for “knowledge workers”, a crucial resource for many organizations. We augment a standard moral-hazard framework to reflect two key patterns: First, retention is a challenge because workers are free to leave; thereby harming their employer. Second, the value of the worker׳s outside option might depend on effort on the job. Optimal contracts that retain workers exhibit properties such as first-best effort and surplus, or non-responsiveness to changes in underlying conditions. Due to large rents, full retention is, however, costly for employers. Hence, even when socially inefficient, separation might occur in equilibrium.

Keywords: Knowledge workers; Moral hazard; Limited commitment; Ex post outside option (search for similar items in EconPapers)
JEL-codes: D82 D86 K31 M52 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:67:y:2014:i:c:p:82-106

DOI: 10.1016/j.euroecorev.2014.01.006

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