This paper studies the impact of incentives on worker self-selection in a controlled laboratory experiment. In a first step we elicit subjects’ productivity levels. Subjects then face the choice between a fixed or a variable payment scheme. Depending on the treatment, the variable payment is...

Incentives often fail in inducing economic agents to engage in a desirable activity; implementability is restricted. What restricts implementability? When does re-organization help to overcome this restriction? This paper shows that any restriction of implementability is caused by an...

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...

We model the sorting of medical students across medical occupations and identify a mechanism that explains the possibility of differential productivity across occupations. The model combines moral hazard and matching of physicians and occupations with pre-matching investments. In equilibrium...

Several empirical studies have challenged tournament theory by pointing out that (1) there is considerable pay variation within hierarchy levels, (2) promotion premiums only in part explain hierarchical wage differences and (3) external recruitment is observable on nearly any hierarchy level. We...

Young professionals typically do not enter into life-long employment relations with a single firm. Therefore, future employers can learn about individuals' abilities from the observable facts regarding earlier work relations. We show that these informational spill-overs have profound...

The Peter Principle captures two stylized facts about hierarchies: first, promotions often place employees into jobs for which they are less well suited than for that previously held. Second, demotions are extremely rare. Why do organizations not correct ‘wrong’ promotion decision? This...

The paper constructs an asymmetric information model to investigate the efficiency and equity cases for government mandated benefits. A mandate can improve workers' insurance, and may also redistribute in favour of more "deserving" workers. The risk is that it may also reduce output. The more...

In many economic situations several principals contract with the same agents sequentially. Asymmetric learning about agents' abilities provides the first principal with an informational advantage and has profound implications for the design of incentive contracts. We show that the principal...

When designing incentives for a manager, the trade-off between insurance and a “good” allocation of effort across various tasks is often identified with a trade-off between the responsiveness (sensitivity, precision, signal-noise ratio) of the performance measure and its similarity...