Hedonic prices and multitask incentives

Masaki Nakabayashi

No 05-32-Rev., Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: Human tasks are often multidimensional. Holmstrom and Milgrom (1991) concluded that ghigh-powered h incentives cannot work unless all dimensions of these tasks are observable in the firm. However, as this study shows, if the firm can observe the price vector of its products in the market, distinguish each dimension of the price vector, and connect the information with signals from workers in the firm, then the use of multitask ghigh-powered h incentives becomes feasible. Product differentiation with committed quality satisfies those conditions, which has been practiced by Japanese, but not by Western, manufacturing for a century.

Keywords: multitask incentives; high-powered incentives; hedonic prices; contract theory; Japanese manufacturing. (search for similar items in EconPapers)
JEL-codes: D23 L22 N65 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2005-12, Revised 2006-03
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