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Transferring knowledge to an agent makes him more successful or productive, which is beneficial for the principal. However, knowledge transfer also increases the agent's outside option. I identify two reasons for withholding knowledge — to reduce labor costs within a principal-agent...
Persistent link: https://www.econbiz.de/10005268627
The endowment and attachment effect are empirically well-documented in bilateral trade situations. Yet, the theoretical literature has so far failed to formally identify these effects. We fill this gap by introducing expectations-based loss aversion, which can explain both effects, into the...
Persistent link: https://www.econbiz.de/10012815003
Using cross-industry survey data, I examine how the determinants of the pace of work affect the probability of using piece rates. Internal determinants raise the likelihood of piece rates, while response to external needs lowers the probability.
Persistent link: https://www.econbiz.de/10010572195
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A highly acclaimed result is that tournaments are superior to piece rates when the agents are risk averse and their production activities are subject to a relatively large common shock. The reason is that tournaments allow the principal to trade insurance for lower income to the agents. Our...
Persistent link: https://www.econbiz.de/10010666052
We show that establishing an internal labor market by offering combined contracts across hierarchy levels strictly dominates external recruitment when workers are homogeneous. The reason is that only an internal labor market can exploit higher tier rents for incentive provision on lower tiers....
Persistent link: https://www.econbiz.de/10011048204
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Recent empirical work suggests a strong connection between the incentives money managers are offered and their risk-taking behavior. We develop a general model of delegated portfolio management, with the feature that the agent can control the riskiness of the portfolio. This represents a...
Persistent link: https://www.econbiz.de/10005504241
When penalties for first-time offenders are restricted, it is typically optimal for the lawmaker to overdeter repeat offenders. First-time offenders are then deterred not only by the (restricted) fine for a first offense, but also by the prospect of a large fine for a subsequent offense. Now...
Persistent link: https://www.econbiz.de/10011263395
In a vertical market in which downstream firms have private information about their productivity and compete for consumers, an upstream firm posts public bilateral contracts. When downstream firms are risk-neutral without wealth constraints, the upstream firm offers the input to all retailers....
Persistent link: https://www.econbiz.de/10011083463