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Bonus Culture: Competitive Pay, Screening, and Multitasking

Roland Benabou () and Jean Tirole

Journal of Political Economy, 2016, vol. 124, issue 2, 305 - 370

Abstract: To analyze the impact of labor market competition on the structure of compensation, we embed multitasking and screening within a Hotelling framework. Competition for talent leads to an escalation of performance pay, shifting effort away from long-term investments, risk management, and cooperation. Efficiency losses can exceed those from a single principal, who dulls incentives to extract rents. As competition intensifies, monopsonistic underincentivization of low-skill agents first decreases and then gives way to growing overincentivization of high-skill ones. Aggregate welfare is thus hill-shaped, while inequality tends to rise monotonically. Bonus caps can help restore balance in incentives but may generate other distortions.

Date: 2016
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Related works:
Working Paper: Bonus Culture: Competitive Pay, Screening, and Multitasking (2013) Downloads
Working Paper: Bonus Culture: Competitive Pay, Screening and Multitasking (2013) Downloads
Working Paper: Bonus Culture: Competitive Pay, Screening, and Multitasking (2013) Downloads
Working Paper: Bonus Culture: Competitive Pay, Screening, and Multitasking (2013) Downloads
Working Paper: Bonus Culture: Competitive Pay, Screening and Multitasking (2013) Downloads
Working Paper: Bonus Culture: Competitive Pay, Screening and Multitasking (2013) Downloads
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