Bénabou, Roland and Tirole, Jean (2016) Bonus Culture: Competitive Pay, Screening and Multitasking. Journal of Political Economy, vol. 124 (n° 2). pp. 305-370.

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To analyze the impact of labor market competition on the structure of compensation, we embed multitasking and screening within a Hotelling framework. Competition for talent leads to an escalation of performance pay, shifting effort away from long-term investments, risk management, and cooperation. Efficiency losses can exceed those from a single principal, who dulls incentives to extract rents. As competition intensifies, monopsonistic underincentivization of low-skill agents first decreases and then gives way to growing overincentivization of high-skill ones. Aggregate welfare is thus hill-shaped, while inequality tends to rise monotonically. Bonus caps can help restore balance in incentives but may generate other distortions.

Item Type: Article
Language: English
Date: April 2016
Refereed: Yes
Uncontrolled Keywords: incentives, performance pay, bonuses, executive compensation, inequality, multitask
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 14:55
Last Modified: 29 Mar 2024 15:22
OAI Identifier: oai:tse-fr.eu:28968
URI: https://publications.ut-capitole.fr/id/eprint/16683

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