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Work‐related perks, agency problems, and optimal incentive contracts
Author(s) -
Marino Anthony M.,
Zábojník Ján
Publication year - 2008
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.0741-6261.2008.00028.x
Subject(s) - incentive , corporate governance , business , autonomy , agency (philosophy) , consumption (sociology) , work (physics) , offset (computer science) , agency cost , production (economics) , microeconomics , public economics , economics , finance , mechanical engineering , social science , philosophy , programming language , epistemology , sociology , political science , computer science , law , shareholder , engineering
Work‐related perks, such as corporate jets, nice offices, and so forth, improve the tradeoff between incentives and insurance that determines the optimal incentive contract. We show that (i) such perks may be offered even if their direct consumption benefits are offset by their costs; (ii) they will be offered for free; (iii) agents in more uncertain production environments will receive more perks; (iv) senior executives should receive more perks; and (v) better corporate governance can lead to more perk consumption by CEOs. Our analysis also offers insights into firms' decisions about how much autonomy they should grant to their employees.