Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/104311
Authors: 
Bartling, Björn
Fehr, Ernst
Schmidt, Klaus M.
Year of Publication: 
2010
Series/Report no.: 
Munich Discussion Paper 2010-7
Abstract: 
In recent decades, many firms offered more discretion to their employees, often increasing the productivity of effort but also leaving more opportunities for shirking. These “high-performance work systems” are difficult to understand in terms of standard moral hazard models. We show experimentally that complementarities between high effort discretion, rent-sharing, screening opportunities, and competition are important driving forces behind these new forms of work organization. We document in particular the endogenous emergence of two fundamentally distinct types of employment strategies. Employers either implement a control strategy, which consists of low effort discretion and little or no rent-sharing, or they implement a trust strategy, which stipulates high effort discretion and substantial rent-sharing. If employers cannot screen employees, the control strategy prevails, while the possibility of screening renders the trust strategy profitable. The introduction of competition substantially fosters the trust strategy, reduces market segmentation, and leads to large welfare gains for both employers and employees.
Subjects: 
job design
high-performance work systems
screening
reputation
competition
trust
control
social preferences
complementarities
JEL: 
C91
D86
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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