Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/338290 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11488
Version Description: 
This Version: September 2025
Publisher: 
Munich Society for the Promotion of Economic Research - CESifo GmbH, Munich
Abstract: 
We develop a model to characterize optimal compensation when large risk-neutral firms and individual risk-averse consumers compete for heterogeneous workers. Production generates consumption utility over two periods, with an uncertain return in the second period. We analyze how screening motives interact with consumption smoothing across time and states. In the optimal compensation scheme, consumers account for the outside option that firms provide to workers in competitive equilibrium. If firms are productive so that the workers' outside option is sufficiently high, it becomes optimal for consumers to smooth the higher total compensation paid to workers across periods, implying less high-powered incentives.
Subjects: 
adverse selection
self selection
peer-to-peer markets
labor markets
capital market imperfections
JEL: 
D15
D82
D86
E24
J33
M52
Document Type: 
Working Paper
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