TY  - UNPD
A1  - Bannier, Christina E.
A1  - Feess, Eberhard
A1  - Packham, Natalie
T1  - Incentive schemes, private information and the double-edged role of competition for agents
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 475
N2  - This paper examines the effect of imperfect labor market competition on the efficiency of compensation schemes in a setting with moral hazard, private information and risk-averse agents. Two vertically differentiated firrms compete for agents by offering contracts with fixed and variable payments. Vertical differentiation between firms leads to endogenous, type-dependent exit options for agents. In contrast to screening models with perfect competition, we find that existence of equilibria does not depend on whether the least-cost separating allocation is interim efficient. Rather, vertical differentiation allows the inferior firm to offer (cross-)subsidizing fixed payments even above the interim efficient level. We further show that the efficiency of variable pay depends on the degree of competition for agents: For small degrees of competition, low-ability agents are under-incentivized and exert too little effort. For large degrees of competition, high-ability agents are over-incentivized and bear too much risk. For intermediate degrees of competition, however, contracts are second-best despite private information.
T3  - CFS working paper series - 475 
KW  - incentive compensation
KW  - screening
KW  - imperfect labor market competition
KW  - vertical differentiation
KW  - cross-subsidy
Y1  - 2014
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/35107
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-351077
IS  - September 8, 2014
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -