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Autor:innen: 
Erscheinungsjahr: 
2007
Schriftenreihe/Nr.: 
Discussion Paper Series No. 452
Verlag: 
University of Heidelberg, Department of Economics, Heidelberg
Zusammenfassung: 
Consider a principal-agent relationship in which more effort by the agent raises the likelihood of success. Does rewarding success, i.e., paying a bonus, increase effort in this case? I find that bonuses have not only an incentive but also an income effect. Overall, bonuses paid for success may well reduce effort and hence the probability of success. I also identify conditions under which the income effect dominates the incentive effect, and single out the hazard-rate of effort as a crucial determinant of this trade-off.
Schlagwörter: 
bonus
premium
incentives
income effect
moral hazard
JEL: 
D8
J3
M5
Dokumentart: 
Working Paper

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