We analyze optimal labor contracts when the worker is inequity averse towards the employer. Welfare is maximized for an equal sharing rule of surplus between the worker and the firm. That is, profit sharing is optimal even if effort is contractible. If the firm can make a take-it-or leave-it...

We analyze optimal labor contracts when workers are inequity averse towards the employer. Welfare is maximized for an equal sharing rule of surplus between the worker and the firm. That is, profit sharing is optimal even if effort is contractible. If the firm can make a take-it-or leave-it...

Performance measurement and evaluation systems are among the most common management instruments. An integral element of this process is the use of targets, typically set in appraisal interviews and formalized via written target agreements. In this paper, we investigate the relationship between...

This study explores the effects of subjective ex-post adjustments of objective performance in a tournament incentive contract including both rewards and penalties. We extend prior literature on the tradeoffs associated with subjectivity in performance evaluations by considering the effects of...

We analyze the impact of imperfect contract enforcement on the emergence of unemployment. In an experimental labor market where trading parties can form long-term employment relationships, we compare a work environment where effort is observable, but not verifiable to a situation where explicit...

We analyze the impact of imperfect contract enforcement on the emergence of unemployment. In an experimental labor market where trading parties can form long-term employment relationships, we compare a work environment where effort is observable, but not verifiable to a situation where explicit...