Worker Compensation Schemes and Product Market Competition

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URI: http://hdl.handle.net/10900/97282
http://nbn-resolving.de/urn:nbn:de:bsz:21-dspace-972820
http://dx.doi.org/10.15496/publikation-38665
Dokumentart: Aufsatz
Date: 2020-01-24
Source: University of Tübingen Working Papers in Business and Economics ; No. 128
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
DDC Classifikation: 330 - Economics
Keywords: Akkordlohn , Wettbewerb
Other Keywords:
worker compensation schemes
piece rates
contests
tournaments
product market competition
License: Publishing license excluding print on demand
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Abstract:

We analyze product market competition between firm owners where the risk-neutral workers decide on their efforts and, thereby, on the output levels. Various worker compensation schemes are compared: a piece-rate compensation scheme as a benchmark when workers’ output performance is verifiable, and a contest-based as well as a tournament-based compensation scheme when it is only verifiable who the best performing worker is. According to optimal designs, all the considered compensation contracts lead to an equal market outcome. Therefore, it depends decisively on the relative costs of organizing a monitoring device, a contest, or a tournament whether the one or the other compensation scheme should be implemented.

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