Present or future incentives? On the optimality of fixed wages with moral hazard

Rosario Macera

Journal of Economic Behavior & Organization, 2018, vol. 147, issue C, 129-144

Abstract: This paper uses a laboratory experiment to show that principals can defer all incentives for present effort to future payments—and thus pay fixed wages—and still motivate workers at the least cost whenever outcomes are observable. This result contrasts with the prediction of the classical moral hazard model, according to which future and present payments must be made contingent on present outcomes to induce effort at the least cost. Even though risk aversion cannot explain this result, I estimate an expectation-based reference-dependent model to show that it is consistent with loss aversion.

Keywords: Fixed wages; Deferred incentives; Dynamic moral hazard; Expectation-based reference-dependent preferences; Loss aversion (search for similar items in EconPapers)
JEL-codes: D86 D90 J33 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268117303463
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:jeborg:v:147:y:2018:i:c:p:129-144

DOI: 10.1016/j.jebo.2017.12.004

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().