Low-powered incentives

Joseph Ritter and Lowell Taylor

No 1999-005, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We study low-powered incentives in a model that captures important features of workplaces in which incentive-pay approaches are minimally relevant. Our motivation is that incentive pay, while not rare, is clearly far less common than are agency problems: many firms with agency problems nonetheless pay fixed compensation and offer continued employment to all but those workers judged \"unsatisfactory\" according to largely subjective criteria. We find that low-powered incentives can achieve efficient outcomes in simple workplaces and function surprisingly well even when the environment is characterized by unobservable performance heterogeneity and a high degree of complementarity among workers.

Keywords: Wages (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (2)

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DOI: 10.20955/wp.1999.005

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