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Distribution, efficiency and incentives in organizations
Author(s) -
Fitzroy Felix R.
Publication year - 1982
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090030409
Subject(s) - incentive , collusion , welfare , microeconomics , economics , consumption (sociology) , distribution (mathematics) , renting , inequality , market economy , mathematical analysis , social science , mathematics , sociology , political science , law
Abstract This paper formulates incentives for individual workers in competitive firms in general equilibrium. Piece‐rates and rewards for relative performance can elicit efficient effort in equilibrium, but workers benefit from collusion to reduce effort and consumption and expropriate capitalists by lowering the rental, while employers may choose equilibria with excessive ‘effort’. When there is uncertainty about true individual effort, prizes and limited penalties for best and worst performance can support efficient solutions, while income‐risk declines as the size of the team grows. If penalties are prohibited, ex post inequality is multiplied and welfare declines.