A Rent Extraction View of Employee Discounts and Benefits

Anthony Marino and Jan Zabojnik

No 273584, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: We offer a novel view of employee discounts and in kind compensation. In our theory, bundling perks and cash compensation allows a firm to extract information rents from employees who have private information about their preferences for the perk and about their outside opportunities. We show that in maximizing profit with heterogeneous workers, the firm creates different bundles of the perk and salary in response to different employee characteristics and marginal costs of the perk. Our key result is that strategic bundling can lead firms to provide perks even in the absence of any cost advantage over the outside market and to deviate from the standard marginal cost pricing rule. We study how this deviation depends upon the set of feasible contracts, upon the perk’s marginal cost, and upon the correlation between the agents’ preferences for the good and their reservation utilities.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 44
Date: 2006-09
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https://ageconsearch.umn.edu/record/273584/files/qed_wp_1108.pdf (application/pdf)

Related works:
Journal Article: A Rent Extraction View of Employee Discounts and Benefits (2008)
Working Paper: A Rent Extraction View Of Employee Discounts And Benefits (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:273584

DOI: 10.22004/ag.econ.273584

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