Incentive compatible reward schemes for labour-managed firms |
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Authors: | Salvador Barberà Bhaskar Dutta |
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Institution: | (1) Universitat Autònoma de Barcelona, 08193 Bellaterra, Barcelona, Spain (e-mail: salvador.barbera@uab.es), ES;(2) Indian Statistical Institute, 7 SJS Sansanwal Maarg, New Delhi 110016, India (e-mail: dutta@isid.ac.in), IN |
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Abstract: | We consider a simple case of team production, where a set of workers have to contribute a single input (say labour) and then
share the joint output amongst themselves. Different incentive issues arise when the skills as well as the levels of effort
expended by workers are not publicly observable. We study one of these issues in terms of a very simple model in which two
types of workers, skilled and unskilled, supply effort inelastically. Thus, we assume away the problem of moral hazard in
order to focus on that of adverse selection. We also consider a hierarchical structure of production in which the workers
need to be organised in two tiers. We look for reward schemes which specify higher payments to workers who have been assigned
to the top-level jobs when the principal detects no lies, distribute the entire output in all circumstances, and induce workers
to revel their true abilities. We contemplate two scenarios. In the first one, each individual worker knows only her own type,
while in the second scenario each worker also knows the abilities of all other workers. Our general conclusion is that the
adverse selection problem can be solved in our context. However, the range of satisfactory reward schemes depends on the informational
framework. |
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Keywords: | : Incentives adverse selection strategy-proofness reward schemes labour-managed firms |
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