Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/79983 
Authors: 
Year of Publication: 
2013
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2013: Wettbewerbspolitik und Regulierung in einer globalen Wirtschaftsordnung - Session: Dynamic Models of Duopoly and Labor Markets No. A17-V1
Publisher: 
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft, Kiel und Hamburg
Abstract: 
We study an infinitely repeated principal-agent relationship with on-the-job search. On-the-job search is modeled as a dimension of the agent's effort vector that has no effect on output, but raises his future outside option. The agent's incentives to search are increasing in the degree to which a higher outside option improves his gains from trade. Search also increases the agent's cost of effort thus generating an effort-substitution problem between work and search effort. We show that the principal can mute search incentives by offering an e fficiency wage contract. Due to effort substitution, e fficiency wages increase the agent's work effort incentives for a given bonus scheme. Thus, effi ciency wages serve as a complement rather than as a substitute to piece rates. Our results provide a new rationale for the use of effi ciency wages as an incentive device and hence greatly extend the set of environments in which e fficiency wages are predicted to be useful as an incentive device. Our findings thus also contribute to the explanation of empirically observed inter-industry variation in the size and composition of worker compensation.
JEL: 
C73
D86
J33
Document Type: 
Conference Paper

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