EconPapers    
Economics at your fingertips  
 

Bonus Culture: Competitive Pay, Screening and Multitasking

Roland Benabou () and Jean Tirole

No 756, IDEI Working Papers from Institut d'Économie Industrielle (IDEI), Toulouse

Abstract: This paper analyzes the impact of labor market competition and skill-biased technical change on the structure of compensation. The model combines multitasking and screening, embedded into a Hotelling-like framework. Competition for the most talented workers leads to an escalating reliance on performance pay and other high-powered incentives, thereby shifting effort away from less easily contractible tasks such as long-term investments, risk management and within-firm cooperation. Under perfect competition, the resulting e¢ ciency loss can be much larger than that imposed by a single firm or principal, who distorts incentives downward in order to extract rents. More generally, as declining market frictions lead employers to compete more aggressively, the monopsonistic un- derincentivization of low-skill agents first decreases, then gives way to a growing overincentivization of high-skill ones. Aggregate welfare is thus hill-shaped with respect to the competitiveness of the labor market, while inequality tends to rise monotonically. Bonus caps and income taxes can help restore balance in agents'incentives and behavior, but may generate their own set of distortions.

New Economics Papers: this item is included in nep-bec, nep-hrm, nep-lab and nep-mic
Date: 2012-12, Revised 2013-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15) Track citations by RSS feed

Downloads: (external link)
http://idei.fr/sites/default/files/medias/doc/by/t ... roleBonusCulture.pdf Full text (application/pdf)

Related works:
Journal Article: Bonus Culture: Competitive Pay, Screening, and Multitasking (2016) 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
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:ide:wpaper:26676

Access Statistics for this paper

More papers in IDEI Working Papers from Institut d'Économie Industrielle (IDEI), Toulouse Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-11-16
Handle: RePEc:ide:wpaper:26676