Perks in Long-term Contracts

YiLi Chien, Minseong Kim, Joon Song
Additional contact information
YiLi Chien, Minseong Kim, Joon Song: Federal Reserve Bank of St. Louis, Sungkyunkwan University, Sungkyunkwan University

Korean Economic Review, 2013, vol. 29, 161-188

Abstract: Perks are a commodity bundle offered by an employer to an employee. We provide two dynamic models. First, we assume non-separable utility function between effort and both of a perk good and money, extending Bennardo, Chiappori and Song (2010). There are two forces affecting the incentive compatibility constraint: higher promised utility makes the incentive compatibility constraint more binding, and if the higher promised utility is too costly then a principal may reduce the implemented effort. When the first effect is stronger than the second, the principal gives more perk good as successful outcomes accumulate. In the second model, an agent can save money privately (i.e. hidden saving), but not a perk good. Increasing monetary payment today makes it more difficult to satisfy the today’s hidden saving constraint, but makes it easier to satisfy the yesterday's hidden saving constraint. When the second effect is larger than the first, the principal gives more perk as successful outcomes accumulate.

Keywords: Perks; Hidden Saving; Moral Hazard; Dynamic Model; Principal-agent (search for similar items in EconPapers)
JEL-codes: D21 D86 E21 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://keapaper.kea.ne.kr/RePEc/kea/keappr/KER-20130630-29-1-08.pdf (application/pdf)

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:kea:keappr:ker-20130630-29-1-08

Access Statistics for this article

Korean Economic Review is currently edited by Kyung Hwan Baik

More articles in Korean Economic Review from Korean Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by KEA ().