Differentiation and Risk Aversion in Imperfectly Competitive Labor Markets

Christina Bannier, Eberhard Feess (), Natalie Packham and Markus Walzl

Journal of Institutional and Theoretical Economics (JITE), 2021, vol. 177, issue 1, 1-27

Abstract: We examine the effect of imperfect labor market competition on the efficiency of compensation schemes in a setting with moral hazard and risk-averse agents who have private information on their ability. Two heterogeneous firms compete for agents by offering contracts with fixed and variable payments. When competition is low, low-ability agents are underincentivized, exerting too little effort. When competition is high, high-ability agents are overincentivized and bear too much risk. For intermediate competition, contracts are second-best. An equilibrium where both firms are active exists only when the least-cost separating allocation is interim efficient.

Keywords: incentive compensation; screening; imperfect labor market competition; vertical differentiation; horizontal differentiation; risk aversion (search for similar items in EconPapers)
JEL-codes: D82 D86 J31 J33 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.mohrsiebeck.com/en/article/differentia ... 101628jite-2020-0044
Fulltext access is included for subscribers to the printed version.

Related works:
Working Paper: Differentiation and Risk-Aversion in Imperfectly Competitive Labor Markets (2020)
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:mhr:jinste:urn:doi:10.1628/jite-2020-0044

Ordering information: This journal article can be ordered from
Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany

DOI: 10.1628/jite-2020-0044

Access Statistics for this article

Journal of Institutional and Theoretical Economics (JITE) is currently edited by Gerd Mühlheußer and Bayer, Ralph-C

More articles in Journal of Institutional and Theoretical Economics (JITE) from Mohr Siebeck, Tübingen
Bibliographic data for series maintained by Thomas Wolpert ().