Technology Choice, Relative Performance Pay, and Worker Heterogeneity

Matthias Kräkel and Anja Schöttner

Post-Print from HAL

Abstract: We identify a new problem that may arise when heterogeneous workers are motivated by relative performance pay: If workers' abilities and the production technology are complements, the firm may prefer not to adopt a more advanced technology even though this technology would costlessly increase each worker.s productivity. Due to the complementarity between ability and technology, under technology adoption the productivity of a more able worker increases more strongly than the productivity of a less able colleague. As a consequence, both workers' motivation to exert effort is reduced. We show that this adverse incentive effect is dominant and, consequently, keeps the firm from introducing a better production technology if talent uncertainty is sufficiently high and/or monitoring of workers is sufficiently precise.

Keywords: complementarities; heterogeneous workers; production technology; relative performance pay (search for similar items in EconPapers)
Date: 2010-11-30
Note: View the original document on HAL open archive server: https://hal.science/hal-00911828
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Journal of Economic Behavior and Organization, 2010, 76 (3), pp.748. ⟨10.1016/j.jebo.2010.08.016⟩

Downloads: (external link)
https://hal.science/hal-00911828/document (application/pdf)

Related works:
Journal Article: Technology choice, relative performance pay, and worker heterogeneity (2010)
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:hal:journl:hal-00911828

DOI: 10.1016/j.jebo.2010.08.016

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().