Bonus Culture: Competitive Pay, Screening and Multitasking

Roland Benabou and Jean Tirole
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Jean Tirole: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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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.

Keywords: Incentives; Performance pay; Bonuses; Executive compensation; Inequality; Multitask (search for similar items in EconPapers)
Date: 2016-04
Note: View the original document on HAL open archive server: https://hal.science/hal-04527031v1
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Citations: View citations in EconPapers (8)

Published in Journal of Political Economy, 2016, 124 (2), pp.305-370. ⟨10.1086/684853⟩

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Related works:
Working Paper: Bonus Culture: Competitive Pay, Screening, and Multitasking (2013)
Working Paper: Bonus Culture: Competitive Pay, Screening and Multitasking (2013)
Working Paper: Bonus Culture: Competitive Pay, Screening, and Multitasking (2013)
Working Paper: Bonus Culture: Competitive Pay, Screening, and Multitasking (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04527031

DOI: 10.1086/684853

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