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Efficiency Wages and X‐Inefficiencies
Author(s) -
Ellingsen Tore
Publication year - 1997
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00082
Subject(s) - inefficiency , economics , microeconomics , incentive , variety (cybernetics) , discretion , principal (computer security) , wage , efficiency wage , limited liability , competition (biology) , production (economics) , productive efficiency , piece work , moral hazard , labour economics , computer science , ecology , finance , artificial intelligence , political science , law , biology , operating system
Within most organizations, agents may spend time on a variety of tasks — productive and redistributive. In this paper, I derive an optimal multi‐task incentive scheme under the assumption that agents have limited liability. The wage level is shown to increase with an agent's discretion and the organization's profits. With multiple agents, it is generally not optimal for the principal to fully eliminate distributional conflict within the organization. The resulting influence costs constitute a measure of X‐inefficiency. The analysis illuminates the relationship between competition and influence costs, emphasizing the role of the organization's production technology.