An Income-Satiation Model of Efficiency Wages

Eric Rasmusen ()

Economic Inquiry, 1992, vol. 30, issue 3, 467-78

Abstract: Efficiency wages are wages that exceed a worker's reservation wage. A standard explanation for such wages is "bonding": high wages increase the cost of being discharged for misbehavior and so help ensure worker honesty. A neglected alternative is "satiation": by decreasing the worker's marginal utility of income, the high wage decreases the benefit from misbehavior. Satiation, unlike bonding, applies even in a one-period model, but it relies on the misbehavior having a monetary benefit and on at least part of the punishment being nonmonetary. Copyright 1992 by Oxford University Press.

Date: 1992
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